In my most recent column in the Pittsburgh Tribune-Review I discuss the urban myth that the chief effect of Henry Ford’s doubling of his workers’ pay in 1914 was to better enable his workers to buy Ford cars. (I dislike the title that the Trib chose for this column. Ford’s move was indeed about Ford’s profits. It was, though, a successful attempt to increase those profits by lowering Ford’s labor costs rather than by increasing consumer demand for Ford’s Model Ts.) Here’s a slice:
Turnover was significant. In 1913, Ford Motor Co. hired 963 workers for every 100 jobs it filled during that year. In other words, the typical worker quit after only six weeks on the job. The costs of training all those new workers who would soon quit raised Ford’s costs unnecessarily. By more than doubling employee pay — and by reducing the amount of time workers had to work to earn this handsome income — Ford reduced turnover and lowered even further the cost of producing the Model T.
While workers whose annual incomes doubled were, of course, better able to afford to buy new Fords, they were also better able to afford to buy nearly everything. No doubt some Ford workers did buy new Model Ts because of their doubled incomes. It’s also undoubtedly true, however, that many Ford workers spent their higher incomes not on newly produced cars but, instead, on better housing, better home furnishings and better and more education for their children.
And even if each of Ford’s 14,000 workers in 1914 did buy a new Model T that year, Ford’s sales would have risen by only 5.7 percent. (The total number of Model T sales in 1914 was 260,720.) Doubling worker pay to generate a 5.7-percent increase in sales (of a product priced at about half of those workers’ annual incomes) is a very poor business practice.
My old friend Tom Miller, and his co-author Abby McCloskey, explain why Obamacare will not lower health-care costs. Quite the contrary – and no surprise. Increasing the ability of each of us to obtain health-care at the expense of each of us – further divorcing health-care-consumption decisions from the responsibility of individually paying for those decisions – cannot help but cause us to ‘over-graze’ the health-care pasture. Free-riding is not transformed from a bug into a feature just because it is mandated by the state.
Douglas French explains that minimum-wage legislation harms especially poor people and minorities. (But, hey, publicly demanding an increase in the minimum wage makes college professors and students and politicians and pundits feel better about themselves – surely a benefit that justifies the resulting worsened job opportunities for the lowest-skilled workers.)
