Preview

Henry Ford's Efficiency Wages

Powerful Essays
Open Document
Open Document
1393 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Henry Ford's Efficiency Wages
Economics of Management Strategy | January 1
2011
| On 5th January 1914 the Ford Motor company announced that it would more than double the wages of its workers. Briefly describe the history of this decision and relate to the theory of incentives and efficiency wages. | Assignment 1 |

Table of Contents

Introduction 3 Brief History: Human Capital Crises at Ford, 1913-1914 3 The 5 Dollar-a-Day Wage Rate: Theoretical and Empirical Impact 3 A Diminution in Absenteeism and Shirking 3 Morale Increase, Turnover Decrease 4 Conclusion 4 Bibliography 5

Introduction
One of the major variables that can determine the rate of profit maximization for firms is the efficiency and productivity levels of employees. Ultimately, firms seek to minimize total costs to induce lower expenses and as labour is a vital component in the factor of production, wages are one of the most fundamental expenses incurred by firms. The efficiency wage hypothesis states that “the productivity of workers is affected by the wage rate that they receive” (Sloman 2006, G:5). Essentially the introduction of Henry Ford’s “5 dollar-a-day” employee wage structure evidently proved this theorem correct, with empirical evidence. The idea behind Ford’s supracompetitive (Raff and Summers 1987, s 58) wages must be critically evaluated and analyzed. This essay will briefly describe the history behind the decision making process leading to the 5 dollar-a-day wage rates as well as an analysis on its effects on absenteeism, shirking and employee morale. The scope of this essay will highlight the degree to which efficiency wages were of importance to Ford Motor Company and evaluate the importance of the doubling of wages with theoretical and empirical support.
Brief History: Human Capital Crises at Ford, 1913-1914
The necessity for high skilled workers was never a concern for Ford but the degree to which employees valued their jobs was (Raff and Summers 1987, s 65). Workers in



Bibliography: Abell, O.J. “The Ford’s Plan For Employees’ Betterment.” Iron Age (January 8, 1914), p 307-8 Akerlof, G.A Chandler, A.D., Jr., ed giant Enterprise: Ford, General Motors, and the Automobile Industry. New York: Harcourt, brace, and World, 1964. Fisher, B. “Methods of Reducing the Labor Turnover.” Bulletin of the Bureau of Labor Statistics, no. 196 (1917), p 15-24. Ford, H. My Life and Work. Garden City, N.Y.: Doubleday, page, 1922. “Ford Gives Reasons for Profit-Sharing.” New York Times (January 9, 1914). Meyer, S. The Five Dollar Day: Labor Management and Social Control in the Ford Motor Company, 1908-1921. Albany: State university of New York Press, 1981. Nevins, A URL <http://www.columbia.edu/~mw2230/EfficiencyWages.pdf> (Accessed: 13/12/2011). Carl Shapiro and Joseph E. Stiglitz. 1998. Equilibrium Unemployment as a Worker Discipline Device. [ONLINE] Available at:http://econ161.berkeley.edu/teaching_folder/Econ_202b/readberk/Shapiro_Stiglitz.pdf. [Accessed 10 December 11].

You May Also Find These Documents Helpful

  • Good Essays

    Henry Ford was one of the most influential people in the early 1900s. He genuinely cared about the well-being of the people; he was not really concerned with wealth. Ford treated his employees with respect, which made the people greatly admire him. Ford’s ingenuity, caring attitude, wit, and ambition proves that he was a captain of industry that the world will never…

    • 905 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    the causes, course, and consequences of the labor movement in the late 1800s and early 1900s…

    • 365 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    In the early 1900’s Henry Ford developed the idea of “a wagon that will run without a horse”.1 This idea and Ford’s success changed America and its people forever. The development of the automobile played a tremendous role in the economy, labor unions and society. Generally, when most people think of Henry Ford they reflect upon his wealth and contributions to the transportation industry as an infinitely positive phenomenon. It is thought that aside from just allowing consumers to purchase and use his inventions, he provided thousands of people with jobs and the promise of prosperity. The tale of Henry Ford’s legendary business and remarkably effective assembly line is unparalleled in American History. But when it comes to Henry Ford it is impossible to think in terms of black of white. He may have made an awesome amount of money distributing a product loved by almost everyone, but at what cost? Upton Sinclair addresses this question in The Flivver King. The Flivver King tells the story of Henry Ford and his massive business from the perspective of his workers. Contrary to popular belief, the relationship between Mr. Ford and his workers became much more frustrating and upsetting as his business progressed. World War 1 and the Great Depression damagingly effect Ford and his workers. Upton Sinclair’s story of the Shutt family depicts the changes that occurred between Henry Ford and his workers and how his growing wealth and the nations declining economy had a negative impact on his approach as a boss and business man. Abner Shutt is a loyal character and a hard worker for Henry Ford. But as the reader follows experiences he and his family encounters while working with the Ford Motor Company it is easy to realize that Henry Ford’s story of success had more tribulations than most people would have expected.…

    • 1571 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    In the future, there will be new laws that will raise the minimum wage, which will change many pay schemes of Ford’s employees which will reduce its annual profits and may force it to change its business approach. For example, Ford may have to change its suppliers to cheaper options to combat the losses it will have due to the wage rise.…

    • 392 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    6. What is Henry Fords Secret to Success: why is it beneficial and how does it work?…

    • 463 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Zinn Chapter 11 Questions

    • 387 Words
    • 2 Pages

    1. What was the technology that transformed the work-place from 1865-1900? What economic and social effects did the new technology have on American society?…

    • 387 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Commonwealth vs. Hunt

    • 2089 Words
    • 9 Pages

    Foner, Philip S. A History of the Labor Movement in the United States. Vol. 1, From Colonial Times to the Founding of the American Federation of Labor. New York: International Publishers, 1962.…

    • 2089 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    superior, he raised their wages to $5 a day. In 1925 having industrious workers Ford was able to…

    • 983 Words
    • 5 Pages
    Good Essays
  • Good Essays

    The laboring class argues that work conditions were horrible; they were unsanitary, overbearing, exhausting, and the list continues. While this argument holds true, it cannot be denied that if more money had been spent on salaries and the beautification of the working environment, the manufacturers would have had no wealth to redistribute to philanthropist purposes. If Rockefeller had not “stolen” from his workers, who then would have contributed to the University of Chicago’s educational and enlightenment funds? If Carnegie had not donated his funds to the creation and prosperity of Carnegie University, how then would the University’s present day achievements have come alive? The fact of…

    • 475 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Industrialists of the time period abused their positions to justify cutting wages through political machines, forcing their employees into twelve hour work days, and firing bottom line workers, in the belief that this was vital for the growth of the United States. They believed that without lowering the wages of their employees, products like steel would not be affordable. However, lowering wages was never an essential measure to make steel affordable; this was all a plot to squeeze any possible revenue from the business.…

    • 447 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    DBQ: Organized Labor

    • 968 Words
    • 4 Pages

    From 1875 to 1900, there was a new kind of city in America, one that was based on industry, and industry needs workers. The factories needed hundreds of workers to run machinery and other processes in manufacturing, but these workers were not treated properly and they wanted to do something to improve the way that they were treated. The organized labor, although it showed some minor successes, was overall very unsuccessful in improving the position of workers from 1875-1900, because the actions of the unions were mostly unsuccessful, and the results of the strikes were very unsuccessful.…

    • 968 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    References: Banham, R., & Newman, P. (2002). The Ford century: Ford Motor Company and the innovations that shaped the world. New York: Workman.…

    • 339 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Meckier, Jerome. "Debunking Our Ford: My Life and Work and _Brave New World_." South Atlantic Quarterly 78, no. 2 (Autumn, 1979): 448-459.…

    • 1017 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Case 1 Fordlandia

    • 2880 Words
    • 43 Pages

    FORDLANDIA CASE Titre du document - page 1 OVERVIEW OF FIRST 2 CASE STUDY SESSIONS • Fordlandia – CSR in an international context – Integration-Responsiveness framework – Integrated Social Contract theory • Sialkot – Child labour as a CSR challenge – Stakeholder theory – CSR in the context of global governance • Learning objectives – To reflect on the context-specific nature of sustainability – To discuss CSR in the context of international development – To appreciate international CSR as a complex management challenge Titre du document - page 2 FORDLANDIA CASE – SESSION STRUCTURE – Group work (1) – Group presentations (1) – Short(ish) lecture – Group work (2) – Group presentations (2) – Wrap-up Titre du document - page 3 4 1. WHAT IS THE CASE ABOUT? 2.…

    • 2880 Words
    • 43 Pages
    Satisfactory Essays
  • Good Essays

    Robber Barons Essay

    • 764 Words
    • 4 Pages

    To get by, however, they had to pay workers very poorly. The manual laborers that were essential to the prosperity of the business were forced to get by on a couple dollars a day. To get more workers, Henry Ford, the founder of the Ford motor company, proposed $5 wages to his employees, nearly twice the average wage at the time. Ford could not let this happen without compensating for the money loss, so he took away the workers’ privacy and rights to talk in large groups. He even would fire them on the spot for no reason. Also, most factory workers had to work 10-12 hour shifts on top of being paid very little so that they could hardly sustain themselves and their families. This exploitation of millions of blue-collar laborers was cruel and extremely greedy of all the power-hungry business leaders and company…

    • 764 Words
    • 4 Pages
    Good Essays