*This is a fantastic article!! I am sending it to a friend at Mercedes Canada.*
On Thu, Feb 21, 2013 at 2:54 PM, Herrn Edward Mulindwa <[email protected]>wrote: > The High Wage Fairy**** > > Philip Cross, Special to Financial > Post<http://opinion.financialpost.com/author/specialfp/>| Feb 20, 2013 8:40 > PM ET | Last Updated: Feb 20, 2013 8:57 PM ET > **** > > *Ford’s productivity leap made his wage hike possible***** > > *Fortune* magazine recently ran an article based on its book* The > Greatest Business Decisions of All Time. *Making the cut — it is promoted > on the book’s cover — was Henry Ford’s famous decision to double workers’ > pay to US$5 a day, ostensibly so “workers could now afford the very > products they were producing,” in the words of Fortune. Sort of “employee > pricing,” but done through higher wage scales, not lower prices. The Ford > website today still cultivates this myth, claiming the wage increase > “helped build the U.S. middle class.”**** > > The idea is regularly floated that firms should pay more to boost > purchasing power and economic growth. Just last week, a union leader in the > U.S. retail industry said: “Wal-Mart could provide the nation with a much > needed economic boost by paying higher wages.” There are several things > wrong with this simplistic analysis.**** > > Start with the premise that Ford raised wages to increase purchasing > power. As the Fortune article documents, before raising wages, Ford already > had doubled output of the Model T with his innovative use of the moving > assembly line, without adding to employment. The moving assembly line is > what Ford deserves accolades for. To get an idea of how revolutionary it > was, Ford built just over a quarter of a million cars in 1914, as much as > the rest of the industry combined, but with 80% fewer workers. In other > words, productivity already had doubled, allowing Ford to double wages > without increasing labour costs.**** > > And he needed to raise wages. Employee turnover at the Highland Park Model > T assembly plant hit 370% in the year before the wage increase, clearly > symptomatic of a dysfunctional internal labour market. That means Ford > incurred the cost of hiring 52,000 people in 1913 to fill 14,000 jobs. The > real reason Ford hiked wages was to reduce the cost of this turnover, not a > soft-hearted desire to transfer purchasing power from management Scrooges > to the Cratchits of the world.**** > > The plan worked like a charm, as turnover plunged to 16% after wages were > doubled, reducing labour costs despite the wage hike. Saying he did it to > raise purchasing power was just good public relations. Who wants to > advertise that their workplace was so disagreeable they could not keep > workers for more than a few weeks at a time?**** > > The motive never was to subsidize sales of the Model T to his 14,000 > workers, a pittance compared with total Model T production of nearly > 200,000 in the first year of the new pay scale (and 15 million by the end > of its production in 1927). Ford boosted sales by cutting car prices nearly > 50% between 1912 and 1916 while booking higher profits. It was the radical > innovation of the assembly line that allowed everyone to win: workers > received increased wages, the firm generated higher profits, while > consumers paid lower prices.**** > > Ford is still reaping good publicity from the notion its founder spread > joy and good cheer in the workplace by raising wages. Its website marvels > that “newspapers from all the world reported the story as an extraordinary > gesture of goodwill.” The universal appeal of this fable, repeated today by > gullible journalists like those at *Fortune*, is probably because it > feeds everyone’s fantasy that one day you’ll show up at work and get that > long overdue raise, without your firm compromising its competitive position. > **** > > Hogwash. If most firms doubled their employee’s wages without an > offsetting increase in productivity, they’d go bankrupt overnight. > Moreover, the $5 a day came with conditions few would accept today. Some of > it was a bonus if workers stayed for six months and met the strictures of > the Social Department and its 50 investigators, including avoiding alcohol > and gambling and taking English lessons.**** > > Over the long haul, Ford may have come to believe too much in his public > personae as the High Wage Fairy. You can connect Ford’s pronouncements > about the benefits of not “making a few slave drivers in our establishment > millionaires” with the inflated wages received at the end of the century by > autoworkers and ultimately the bankruptcy of GM and Chrysler (Ford survived > largely due to a timely US$10.1-billion line of credit taken out in 2007). > **** > > The video clips of tens of thousands of workers lined up for a few hundred > auto jobs in the mid-1990s were a clear sign that the dysfunctional amount > of labour turnover at Highland Park had come full circle, with extravagant > employee benefits beckoning legions of workers from other sectors. A lower > wage scale for new hires since 2009 marks the beginning of the correction > to this imbalance.**** > > Commentators regularly mix sentimentality with economics when discussing > wages. The point is that the inherent goodness or well-meaning of people in > a particular line of work is irrelevant, as is aggregate purchasing power. > Supply and demand ultimately determine wages.**** > > *Financial Post***** > > *Philip Cross is research co-ordinator for the Macdonald-Laurier > Institute and the former chief economic analyst at Statistics Canada.* > > ** ** > > Thé Mulindwas Communication Group > "With Yoweri Museveni and Dr. Kiiza Besigye Uganda is in anarchy" > Kuungana Mulindwa Mawasiliano Kikundi > "Pamoja na Yoweri Museveni na Dk. Kiiza Besigye Uganda ni katika machafuko" > **** > > ** ** > > _______________________________________________ > Ugandanet mailing list > [email protected] > http://kym.net/mailman/listinfo/ugandanet > > UGANDANET is generously hosted by INFOCOM http://www.infocom.co.ug/ > > All Archives can be found at > http://www.mail-archive.com/[email protected]/ > > The above comments and data are owned by whoever posted them (including > attachments if any). The List's Host is not responsible for them in any way. > --------------------------------------- > >
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