Here is what I wrote in Railroading Economics about Ford's $5 day.
========== Ford's $5 Day
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 (Slichter 1919, p. 266).
Turnover at the Ford plant had soared to 370 percent by 1913. The
company had to hire 50,448 men just to maintain 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 1300 or 1400 replacement
workers without any experience (Raff and Summers 1987, pp. S63-64). One
observer remarked, "the Ford Motor Co. had reached the point of owning a
great factory without having enough workers to keep it humming" (Sward
1972, pp. 48-49).
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 (Meyer 1981). 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 (Sward 1972, p. 51).
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 it 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. [Ford 1922, pp. 126, 127, and 147; cited in
Raff and Summers 1987, p. S59]
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 (Slichter 1919, pp. 243-44). Absenteeism also subsided, falling
to 0.4 percent in 1914 (Slichter 1919, p. 266).
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" (Conot 1974, p. 175).
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" (Flink 1975, p. 89; see also Sward 1972,
pp. 228-29; and Harvey 1976, p. 277).
For example, the company had to be "satisfied that he [the qualified
worker] will not debauch the additional money he receives" (Raff and
Summers 1987, p. S69). 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 (Conot 1984, p. 175-76). Furthermore, the inspectors had to
determine whether the workers displayed sufficient thrift, cleanliness,
"good manhood," and good citizenship (Conot 1984, p. 175). Workers also
had to tend gardens that the inspectors deemed to be adequate (Sward
1972, pp. 228-29). Not surprisingly, during 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" (Arnold
and Faurote 1919, pp. 41-42; cited in Montgomery 1987, p. 234).
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" (Raff and
Summers 1987, p. S81).
--
Michael Perelman
Economics Department
California State University
Chico, CA
95929
530 898 5321
fax 530 898 5901
http://michaelperelman.wordpress.com
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