henry ford doubles his workers' wages -- 1/29/16

Today's selection -- from Railroading Economics by Michael Perelman. As the Industrial Age took hold, workers did not adapt well to the regimented hours and crushing and monotonous life in the factory. The problem became so pronounced that Henry Ford's factories of the early 1900s had turnover of almost 400 percent -- meaning he had to hire 50,448 men in a given year year to maintain a workforce of 13,623. So in 1913, he famously doubled wages -- not as a matter of largesse but in order to reduce his expenses. However, as with all things involving Henry Ford, there was a catch:

"Nowhere was the problem of turnover and absenteeism more severe than in the factory of Henry Ford, where workers' dissatisfaction was running dangerously high. Absenteeism in the Ford plant in 1913 had reached 10.5 percent.

"Turnover at the Ford plant had soared to 370 percent by 1913. The company had to hire 50,448 men just to maintain the average labor force of 13,623. Company sur­veys at Ford revealed that more than 7,300 workers left in March 1913 alone. Of these, 18 percent were discharged; 11 percent formally quit; and 71 percent were let go because they missed five days in row without excuse and so were deemed to have quit. On each day, it was necessary to make use of 1,300 or 1,400 replacement work­ers without any experience. One observer remarked, 'the Ford Motor Co. had reached the point of owning a great factory without having enough workers to keep it humming.'

"Hiring new workers, even unskilled workers, and offering them a minimum of training turned out to be an expensive proposition. Stephen Meyer estimates that Ford spent $35 to break in each new worker. With 52,000 workers entering the Ford factory in 1913, the company lost $1,820,000 because of turnover. In addition, although conventional union organizing was not much of a threat for most industrial­ists at the time, the Industrial Workers of the World was threatening to organize Ford's factory.'

The day after the Jan. 5, 1914, announcement of the $5-a-day wage, an estimated 10,000 job seekers
stood outside the Ford plant in Highland Park despite the frigid temperatures. / The Henry Ford

"These conditions prompted Ford to initiate what was perhaps the most dramatic precursor of welfare capitalism: his famous introduction of the $5 a day wage. Although Ford's gesture seemed unexpectedly generous at the time, Ford himself freely admitted that his motives were entirely self-interested:

There was ... no charity involved. ... We wanted to pay these wages so that business would be on a lasting foundation. We were building for the future. A low wage busi­ness is always insecure. The payment of $5 a day for an eight-hour day was one of the finest cost-cutting moves we ever made.

"Although Ford based his policy on sound business principles, the business com­munity was aghast at his behavior, excoriating Ford as a 'mad socialist' and a 'traitor to his class.' The Wall Street Journal and other financial papers enthusiastically joined in the attack.

"Nonetheless, the $5 wage was a brilliant stroke of capitalist genius. In 1914, the first year after Ford began the $5 wage, turnover fell dramatically to 54 percent, By 1915, it dropped still further to 16 percent. Absenteeism also subsided, falling to 0.4 percent in 1914.

"Despite its effectiveness, the $5 plan was not exactly what it seemed to be. It included a basic hourly wage of only 34 cents per hour plus a profit-sharing rate of 28.5 cents. Workers did not automatically receive the profit-sharing rate. Instead, eli­gibility profit sharing depended on a number of special conditions. To begin with, workers had to perform satisfactory work to participate in profit sharing. In addition, Ford disqualified all women. According to one source, 'Women did not work on the assembly line, and were not likely to drink and fail to show up for work. They did not jump from job to job. So there was no reason to include them.'

"According to a 1914 Ford pamphlet, to qualify for the plan, a worker also had to be at least twenty-two years old, with six months seniority. Ford imposed numerous other conditions for profit sharing that seemed to be unrelated to work. The company established a Sociological Department, initially consisting of 200 inspectors, to investigate the workers to see if they met the company's qualifica­tions. They 'visited workers' homes gathering information and giving advice on intimate details of the family budget, diet, living arrangements, recreation, social outlook, and morality.'

"For example, the company had to be 'satisfied that he [ the qualified worker] will not debauch the additional money he receives.' Toward this end, the Sociological Department had to be certain that the workers maintained a suitable home, refrained from taking in boarders, operated no outside business, made sure that the family did not associate with the wrong people, avoided excessive smok­ing or drinking, and demonstrated adequate progress in learning English. In addi­tion, wives of qualified workers could not work outside of the home. Furthermore, the inspectors had to determine whether the workers displayed suf­ficient thrift, cleanliness, 'good manhood,' and good citizenship. Workers also had to tend gardens that the inspectors deemed to be adequate. Not surprising­ly, during the first two years, 28 percent of all male workers were disqualified from profit sharing.

"Ford expected more than improved family life in return for his plan. He expected near absolute obedience. One contemporary study of the Ford system concluded that Ford 'desires and prefers machine-tool operators who have nothing to unlearn, who have no theories of correct surface speeds for metal finishing, and will simply do what they are told to do, over and over again, from bell-time to bell-time.'

"Ford also expected that this obedience would translate into greater effort from the workers. A production foreman named W. Klann reported, '[They] called us in and said that since the workers were getting twice the wages, (the management) wanted twice as much work. On the assembly lines, we just simply turned up the speed of the lines.' "


Michael Perelman


Railroading Economics: The Creation of the Free Market Mythology


Monthly Review Press


Copyright 2006 by Michael Perelman


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January 30, 2016
akhilesh.vyawahare@gmail.com - And so what have you added to the discussion? You offer how much you agree with me (60%,) which is pointless, and a nostalgic tidbit of admiration for Ford based on a dubious presumption. Don't take me wrong, I welcome feedback to the degree to which is useful.

Ford was not in danger of closing, it was just not maximally profitable. The move was brilliant but was not about survival. A survival threat would have been a lack of available replacement hires - Ford had a plentiful stream. There is nothing to prove that trying to engineer workers home lives or not including women was anything other than the peculiar preferences of Ford, who was a social eugenicist.


January 29, 2016
I think JohnSmith is (may be 60%) correct on his part, however, in a situation where Ford's company was going through, it was really a brilliant move to keep the company alive.


January 29, 2016
Of course the counterpoint to this piece is that if you ask people today about these events, they simply parrot, "Henry Ford raised worker wages."

The story of history is in the details many people overlook, substituting popular myth as filler. Explanations include disinterest, laziness, or lack of drive to leave one's comfort zone to educate oneself or just innocence. Conversely, the popular history filler is often driven into people's head intentionally by interested parties such as business. The salient feature here is that individuals are less well coordinated than, and so at the mercy of, entities that manipulate public perception and awareness as a profession.

Ford's workers were heavily manipulated, intentionally propagandized, divided as a body, and lured by duplicitous offers of wealth. This is telling; business is willing to rearrange lives, families, and cultures in pursuit of profit. In 1915 people understood this because they lived the change. Soon afterward came the labor movement and labor unrest that put some power into the hands of industrial labor. Business reacted to worker demands for fairness with a scientifically planned and professionally engineered assault on organized labor, and today it can be claimed business won the propaganda war. Public perception of labor unions is negative, to the extent that workers actually act against their own interests and have lost the connection to the autonomy over their own lives that was normal in the past.

An interesting specific example of the forces used against workers is the "Mohawk Valley Formula" for strike breaking engineered by the Rand Corporation in the 1930s.

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