
The story of Henry Ford's $5 a day wages: not what you think (2012) - hhs
https://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/#674d6332766d
======
mjw1007
The story makes a good deal of sense if, in general, wages are set only partly
by supply and demand, and partly by the employers-as-a-class's feelings of how
much money people doing that sort of job ought to earn.

In this case production line workers were a relatively new thing, and Ford was
helping to create a consensus about where they would fit in.

Part of the reason why simple supply and demand doesn't dictate a single level
of wages is that there's a good deal of flexibility in what doing a job
entails.

In this case it seems Ford was helping to decide that the workers would be
skilled labourers: there'd be a training cost (what the article calls "a
costly break-in period") and high enough wages to reduce turnover so as to
amortise that cost.

The business about "character requirements" and visiting the employees' homes
also looks like a conscious attempt to control where the workers fit in the
class system.

The alternative would presumably have been to try to organise the production
line to require less training, and accept the efficiency loss in exchange for
the lower wage bill.

~~~
brandmeyer
> The story makes a good deal of sense if, in general, wages are set only
> partly by supply and demand, and partly by the employers-as-a-class's
> feelings of how much money people doing that sort of job ought to earn.

In my experience, this is exactly how business owners feel. The skyrocketing
salaries of tech workers in recent years is a prime example. It isn't just
supply and demand. Its also norm-breaking behavior by a handful of
exceptionally profitable employers.

~~~
rumanator
> In my experience, this is exactly how business owners feel.

Anyone who consumes a good or service is aware of its market price, and is
very well capable of comparing it to any value offered. There is no need to
pull a classist conspiracy card because, in the very least, those responsible
for doing the hiring have interviewed multiple candidates and heard what wages
they were asking, and were more than able to compare offers.

~~~
mjw1007
It isn't so simple, because there are many ways of dividing up the work that's
going to be done into job roles (and the division tends to be industry-wide,
rather than done separately within each company).

The people doing the hiring may have enough information to produce an
efficient market for a given job role, but I don't think the mechanism for the
selection of job roles looks much like a supply-and-demand market.

Consider system administration. As a simplified example, you could have one
equilibrium in which you have one low-skill employee for each 50 computers, or
a different equilibrium where you have one high-skill employee for each 500
computers.

If the industry as a whole settled on the first, a particular company would
find it hard to switch to the second: it would be hard to even gather
information about how well it would work, because the operating systems
available would be designed for the lower levels of automation that the first
model implies.

In cases where two equilibria are viable, I think where we end up can depend
on whether the employers feel that a given sort of job "ought" to be a high-
paid professional one or not.

------
34679
I don't disagree with the article, but the false equivalency at the beginning
is pretty annoying.

>It should be obvious that this story doesn't work: Boeing would most
certainly be in trouble if they had to pay their workers sufficient to afford
a new jetliner.

You could go the other extreme and ask the same question about paperclips, but
paperclips are a poor substitute for automobiles. The equivalent of a jetliner
in Ford's day would probably be closer to the Titanic than a Model T.

~~~
gshdg
But it is in Boeing's interest to pay workers enough to increase demand for
jetliners -- that is, enough that they can afford airline tickets with some
frequency.

~~~
philwelch
Not necessarily! If Boeing decides to pay an employee an extra $50/month, and
that employee saves all of that money and spends it on airline tickets, after
the money that goes to the airline, the airline workers, the oil companies,
and the airports, a small fraction of it returns to Boeing. Whereas if they
didn’t pay them that extra $50/month, they would retain 100% of it.

~~~
iso1631
If you pay an extra $50 a month, it forces all the other companies to pay an
extra $50 a month, and you get a fraction of everyone's extra $50. If you get
5% of the average $50 a month extra, but only employ 1% of the workers, you
make money

~~~
philwelch
If you only employ 1% of the workers and you pay an extra $50/mo, the rest of
the market isn’t necessarily going to keep up with you. You’re probably just
gonna end up hiring the top 1%. (Which also had a lot to do with Ford’s
success, to be fair!)

------
csours
Why does my company give a raise every year: If they don't, I'll leave.

Why does my company employ me in the first place: If they didn't, they would
make less money.

~~~
lotsofpulp
> Why does my company give a raise every year: If they don't, I'll leave.

AND someone decided it probably costs less than hiring a replacement for you.

~~~
unlinked_dll
I don't think people responsible for making those decisions are always adept
at calculating what those costs are, and they aren't always empowered to make
the fiscally sound choice.

------
sixhobbits
part of an account I heard of this somewhere else was that the turnover of
employees was specifically _between_ car manufacturers. Because they all paid
more or less the same, if a worker got annoyed he would leave with no notice
and go to a competitor.

Ford also refused to re-hire anyone who had previously quit, so the $5 was a
great example of "Golden handcuffs". People would think twice before leaving,
knowing they would be making 50% for the foreseeable future if they did.

~~~
ClumsyPilot
Is a blanket ban on re-hires legal? It does not sound legitimate/legal.

Surely a hiring decision should be based on employee skills/performance, and
not punish general life choices?

~~~
sixhobbits
I'm not an expert! But my impression is labour law was pretty different then
and very employer focused.

------
irjustin
Today, I don't think the general public buys that story cover. Probably back
in Ford's time.

Ford had to raise wages because it was actually cheaper than to not to. If we
want to look at a good analog today, I would point to software engineers.

------
ruytlm
The most fascinating part of this article to me is the choice to represent
dollar amounts like $9,250,000 as "$9 1/4 million".

I don't think I've seen a non-decimal format used for currency outside of
history books talking about pre-decimal currencies.

------
thethethethe
>It should be obvious that this story doesn't work: Boeing would most
certainly be in trouble if they had to pay their workers sufficient to afford
a new jetliner.

This is a terrible strawman. One could easily argue that Boeing should pay
their employees enough so they could afford plane tickets to fly in Boeing
jets. Comparing a commodity product to a commercial product like this article
does is narrow and silly.

~~~
mcguire
Well, it is Forbes.

~~~
ChrisSD
To be clear, this is not Forbes. This is forbes.com/sites/ which is an
unedited blogging network. So long as a blog brings in clicks and doesn't
cause problems for Forbes then they don't much care what is posted.

~~~
xyzzyz
If it's at forbes.com, and has Forbes logo at the top, it's Forbes. If they
don't like the brand damage this is creating, tough luck: they can't have
their cake and eat it too.

------
iguy
Another facet not mentioned is unemployment. The world of pretty casual
factory work (52k hires/year with 14k employees) was one in which (say) a 20%
decline in work meant the average guy waited an extra 2.8 weeks before
starting the next job, which he did a few times each year. It's pretty easy to
save/borrow enough for a few weeks.

But in Ford's new world of more-or-less employment for life, a 20% decline
meant 20% got fired, and those guys now waited on the bench until the economy
recovered. This is, I think, part of why the great depression was so
unpleasant, compared to 19th century recessions. (For clarity, I don't think
this was anybody's intention, just a consequence of higher-skill jobs being
less flexible. Nor that it was the entire story.)

------
thaumaturgy
Beware of getting history lessons from fellows at the Adam Smith Institute. As
is almost always the case with history, the truth is a bit more nuanced and
needs more than one conservative's blog for a full treatment.

The policy did come directly from Henry Ford [1], and in 1926, Ford himself
wrote:

> _" The owner, the employees, and the buying public are all one and the same,
> and unless an industry can so manage itself as to keep wages high and prices
> low it destroys itself, for otherwise it limits the number of its customers.
> One’s own employees ought to be one’s own best customers."_ [ibid]

Although employee turnover may have been a factor, the source material for Tim
Worstall's quoted excerpt in 2012 continued,

> _" The $5-a-day rate was about half pay and half bonus. The bonus came with
> character requirements and was enforced by the Socialization Organization.
> This was a committee that would visit the employees' homes to ensure that
> they were doing things the "American way." They were supposed to avoid
> social ills such as gambling and drinking. They were to learn English, and
> many (primarily the recent immigrants) had to attend classes to become
> "Americanized." Women were not eligible for the bonus unless they were
> single and supporting the family. Also, men were not eligible if their wives
> worked outside the home. Other groups also offered classes to help
> immigrants and southern blacks adapt to the Detroit area, but none were so
> prominent as the Ford plan."_ [2]

And this is where so much more of the nuance really comes in to play, because
Ford was a complex character. Among his complexities was a really
paternalistic view of his workers and of society; he believed in an idealized,
perfect society, and sought to create it and to force others to live in it.
[3]

The $5-a-day plan solved a handful of problems then. It gave Ford a lot of
free advertising in the press, it added a significant amount of pressure to
his competitors, it ultimately made his automobile a little bit cheaper, and
it supported his paternalism for his workers.

You could do worse for a modern analogue for Henry Ford than Elon Musk. He's a
really divisive figure in a lot of discussions, alternately driven by
impassioned visions of a hypothetical society and by larger-than-normal
faults. He makes decisions that are part business and part ideology, and so
did Ford.

[1]: [https://www.saturdayeveningpost.com/2014/01/ford-doubles-
min...](https://www.saturdayeveningpost.com/2014/01/ford-doubles-minimum-
wage/)

[2]:
[http://web.archive.org/web/20121224153214/https://www.michig...](http://web.archive.org/web/20121224153214/https://www.michigan.gov/dnr/0,1607,7-153-54463_18670_18793-53441--,00.html)

[3]: Fordlandia: The Rise and Fall of Henry Ford's Forgotten Jungle City

~~~
hither2
I enjoyed your comment, but it is an unfair criticism of the article. The
subject of the article is not Henry Ford, the subject is his $5 a day wages.
It's a business article (vaguely economic) not a historical account.

Will probably buy that book though. Thanks.

------
austincheney
The article centers on this:

> The point is not so as to be paying a "decent wage" or anything of that
> sort: it is to be paying a higher wage than other employers.

There are a couple of key take things to take away from that.

* The employer is less pressured to find candidates. Candidates will find the employer if it means double wages.

* The employer has more choices. They aren't locked into settling for somebody vaguely competent from a limited pool of applicants.

* Employees are locked in knowing they cannot go somewhere else for equivalent money.

Despite those points there are limitations to this approach. For example, I
have known many low income people who would not join the military even though
it could mean double or more in wages. Likewise I have also known many people
who refuse to get into software knowing they could double their wages. I would
also be willing to accept lower wages elsewhere if the work were engaging and
meaningful (however a person defines meaningful).

The only way that super high wages make sense numerically is if it results in
retaining employees for a longer enough period to reduce expenses of employee
replacement over a satisfactory time period and results in a premium on choice
of employee from the population at large.

Wages alone won't provide a combination of those though. There has to be
something in addition that makes the employer stand out in world class
fashion. That could be unique opportunities, superior training, an
accreditation program, research recognition, or something else. If this is
missing the organization is going to swell with a certain percentage of bad
candidates that will decay the organization over time from the inside out.

Government agencies emphasize the later more than the former because they have
budget limitations on what they are allowed to pay employees and because the
later has proven more historically reliable at retainment.

~~~
smt88
> * The only way that super high wages make sense numerically is if it results
> in retaining employees for a longer enough period to reduce expenses of
> employee replacement over a satisfactory time period and results in a
> premium on choice of employee from the population at large.*

This ignores the large increase in productivity from each individual employee.
Better-paid employees are less stressed, healthier, less busy at home (because
they can afford domestic help), and spend less time commuting.

All of those things provide ROI for higher wages irrespective of turnover.

~~~
austincheney
> Better-paid employees are less stressed, healthier, less busy at home
> (because they can afford domestic help)

Again, that isn’t always true. It is true when comparing $40k to $100k but
less true when comparing $200k to $400k. When looking at that argument in
terms of scale it is an argument of diminishing value that does not guarantee
the increased individual productivity the argument would promise. The reason
why that argument can suggest but not promise increased individual
productivity is that increased wages alone does not directly correlate to
better leadership or a more valuable team.

------
baybal2
You boss being generous does not have to mean him being lax.

Laxity and lack of seriousness are bad for the company. All bad bosses I had
were like that.

~~~
fuzzfactor
The moral of the story is you're supposed to be generous to your employees by
reflex without having to wait for excess labor difficulties or costs to become
quantifiable.

Pinpointed savings will always be limited and never correlate very well with
the unlimited advantage of a more motivated staff after all.

------
6510
I'm not a communist in that I feel we should reward effort, experience and
commitment but that said I also think grunt work and bean counting are equally
important to get a product out there. There is nothing logical about squeezing
the grunt work as much as possible for the benefit of the bean counter. Its
just theft.

I one time oversimplified the situation like this: We could examine each
sector for innovation. If there is not enough or a sufficient lack of it
government can run the operation. The idea needs a bit of fine tuning to house
the remnants of innovation in competitive commercial hands.

------
tehjoker
Essentially employee non-compliance with a capitalist induced higher wages.
What a wonder.

------
hindsightbias
Stopped reading when he compared a commodity auto market to Boeing.

~~~
dredmorbius
You can stop when you see Worstall's name. Absolute lying imbecile.

------
forkexec
_The International Jew: The World 's Problem_

Ford's articles published in The Dearborn Independent - Ford's personal
newspaper, and later published as a book.

[https://en.wikipedia.org/wiki/The_International_Jew](https://en.wikipedia.org/wiki/The_International_Jew)

And let's not forget the bromance between Ford and Hitler.

“only a single great man, Ford, [who], to [the Jews’] fury, still maintains
full independence…[from] the controlling masters of the producers in a nation
of one hundred and twenty millions” - Mein Kampf by Adolf Hitler

[https://rarehistoricalphotos.com/henry-ford-grand-
cross-1938...](https://rarehistoricalphotos.com/henry-ford-grand-cross-1938/)

Also one of the many antisemitic conspiracy theories Ford espoused:

 _Jews have always controlled the business... The motion picture influence of
the United States and Canada...is exclusively under the control, moral and
financial, of the Jewish manipulators of the public mind._ \- Henry Ford

~~~
rmrfstar
Why was this down-voted?

If we don't pause to examine the dramatic moral failings of earlier tech
titans, how will we identify our era's blind spots?

------
rmrfstar
Seriously, please read about how creepy Ford was, this article does not do it
justice. [1]

There are other tech titans with strong ideological views about how you should
live. [2]

Fun fact: Ford hired "private detectives" who used machine guns to murder
striking workers. [3]

Know your history. There is nothing new under the sun.

[1]
[https://scholarworks.wmich.edu/cgi/viewcontent.cgi?article=2...](https://scholarworks.wmich.edu/cgi/viewcontent.cgi?article=2124&context=dissertations)

[2] [https://youtu.be/xM9GMGDsKUU?t=859](https://youtu.be/xM9GMGDsKUU?t=859)

[3]
[https://en.wikipedia.org/wiki/Ford_Hunger_March](https://en.wikipedia.org/wiki/Ford_Hunger_March)

~~~
rumanator
> Seriously, please read about how creepy Ford was, this article does not do
> it justice.

What surprised me the most is that Ford's decision to increase wages was
actually to use Ford's dominance to pull an anti-competitive play on his
rivals to try to dry them of talent and manpower, which back in the days
actually was deeply tied to the throughput and quality of the product that
comes out of their production lines.

Thus by paying a little extra to their workers, you in practice are killing
off your competition by strangling their ability to produce competing
products.

It surprised me that the author showed ignorance in a way that forced him to
use some imagination to come up with absurd argumrnts when he did not needed
to.

~~~
stale2002
How in the world is that "anti-competitive"?

It sounds like you are saying that these workers were worth a lot of money, as
they determined the quality of the cars.

So... that means that they were actually worth those higher wages.

Anti-competitive would instead be if a company did something that was
unprofitable in the short term.

This wasn't unprofitable in the short term! It makes perfect business sense to
pay lots of money to highly skilled workers that are legitimately worth that
money!

~~~
Nasrudith
My guess is that it requires deeper pockets but it is an utterly fucked thing
to call actually competing for employeers anticompetitive. Granted the
accusation "anticompetive" is often a tall poppy complaint that really means
"I don't want to have to compete with that!"

------
_red
1913 US dollar backed by gold @ $25/oz. Therefore was 1/5 oz of gold.

Thats a 2020 equivalent to $300 per day and there was no income tax.

This is whats been stolen from you.

~~~
RubenvanE
A better way to find the 2020 equivalent of $5.00 would be to look at the
change in Consumer Price Index (CPI) over the past century.

The CPI changed from 9.9 in 1913 to 255.7 in 2019. So $5.00 dollars in 1913 is
equal to about $130.00 in 2020.

~~~
_red
>CPI

* hedonic adjustments

* variable basket of goods

* structurally created to understate inflation to save gov money on entitlement payments

~~~
derriz
The difficulties with CPI are well known to economists and anyone interested
in historical finance.

But its flaws are insignificant compared to using the price of gold as a
measuring stick - given how volatile its price is.

By your method of calculating equivalent amounts, the $5 a day was worth $300
in 2020 but only $200 in 2016 - or $380 in 2012 or $50 in 2002.

~~~
fuzzfactor
IRC these wide variations are all due to relatively greater fluctuations in
the value of the dollar compared to relatively lesser fluctuations in the
functional value of gold.

With uneven but too-frequent devaluation events, the US dollar, or indices
based on it, certainly does not have enough continuity to make accurate
trending across the previous century feasible.

These events are usually reserved for situations when other assets are in
extreme flux, exacerbating the difficulty accommodating the discontinuity.

This has been by design.

------
worik
Repeated use of a straw man argument. I knew that retention was a reason for
higher pay. But social inclusion was too, that is the surplus of money and
ability to join in consumer culture. (I doubt Henry used terms like that!)

"It was nothing at all to do with creating a workforce that could afford to
buy the products" is simply a lie. That was part of the reason.

~~~
ncmncm
It was promoted as the reason, but all the evidence directly contradicts that.

