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Minimum wage arguments and the Henry Ford model

Workers on the Ford assembly line, circa 1913.

Former State Senator Amy Koch is the latest in a string of Republican legislators and spokespersons that have assailed the minimum wage. The latest being a “twitter spat” between her and Rep. Ryan Winkler:

A recent Twitter conversation between state Rep. Ryan Winkler and former state Sen. Amy Koch has led to the scheduling of a debate between the two on whether to raise the state’s minimum wage. Winkler favors it; Koch does not.

“He [Winkler] tweeted that education and raising the minimum wage were a top priority, and I had just been at my first Bowling Proprietors Association meeting, and this was their top concern,” she said.

Republicans say they are looking out for the best interests of Minnesota businesses which in turn means “protecting” (keeping) those minimum wage jobs (as they are).

And again, that position is wrong.

Let’s go back to a very historical event that happened in 1914. It is the lucrative beginnings of the automobile industry. The Ford assembly line is in full operation and the Model T is at its highest demand.

But Ford does something unprecedented and shocking. He raised the standard wage for his workers from $2.34 per day to a full $5.00 per day.

Was Ford the ultimate friend of the worker? Was this a magnanimous gesture to bolster the worker’s plight?

On the contrary. Ford hated unions and his was the last automobile company to collectively bargain. He also insisted on looking into the private lives of his employees, only allowing the new wage after 6 months of working and “passing” a social acceptance (morality) test. His motivation was pure self interest. He had a huge backlog of demand for his cars and needed to increase production. So why raise wages?

1) The higher wage stopped the need for continuous retraining of workers. Worker retention increased dramatically.

2) Workers were motivated to become more productive, needing to keep their jobs as applications increased dramatically.

3) Skilled workers from other plants began moving to the Ford company, forcing other car companies to follow suit in matching the salaries.

4) Ford’s own workers were now able to purchase the product they were making, opening up a whole new market which expanded as other companies matched the new wage.

Henry Ford increased production and demand increased again as his lower price point made his vehicle the most competitive. He not only increased production, he increased his profits.

So what can we learn from this historical event?

We often equate the fast food industry with very low wage jobs, and they are. They generally pay minimum wage scale and probably would pay lower if allowed.

Wages in this range are not a living wage and therefore probably give rise to many of the same problems that Ford Motor Company faced prior to Henry Ford’s dramatic move.

Fast food jobs are low skilled. Most of the work is automated and based on pre-processing. Jobs are outsourced whenever possible. Those that do work in the fast food restaurants take the jobs because nothing else is available, and start work with the idea that they are going to keep looking for “something better.” Turnover is high — satisfaction with the work is low.

There is an additional cost with constant turnover and a lack of employee motivation. These businesses may think they are working with a fixed labor cost, but they are wrong.

The argument is always that business cannot afford an increase in their low wage worker base. Yet, they adjust to material costs every day and although they object to taxes in all of its forms, they adjust for that as well.

Post-recession, too many workers have to use minimum wage jobs as their source of income. I think everybody agrees that current $7.25 an hour wage jobs ($15,000 per year) are not livable. Anyone who works them is in poverty.

The dignity of work is found wanting at these levels and business suffers consequences for that as well. 

If we would do as Ford did and double the minimum wage, prices for products would probably go up, but would it put anyone out of business? Would the consumer even notice? If workers were more productive and customers more satisfied with services, would a $1.15 value menu be outrageous compared to a $1.00 value menu? Some have argued that minimum wage increases wouldn’t change the cost of products at all.

Republicans question the system of welfare and food stamps in this country. But they never correllate that with the rising number of low wage jobs that have followed our latest “economic fix.”

We need to think differently on the cost of doing business. A business model that locks wages at the lowest scale is not a business of the future. 

This post was written David Mindeman and originally published on mnpACT! Progressive Political Blog. Follow Dave on Twitter: @newtbuster.

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Comments (2)

  1. Submitted by Pat Berg since 2011 on 08/12/2013 - 04:41 pm.

    Can I ask for a discussion?

    Can I ask for a discussion without getting beat up for asking the question?

    The question is this: What would be the pros and cons of a two-tiered minimum wage approach which differed based on whether the worker was over or under the age of 18?

    When I see discussions of the need for a “living wage”, I can’t help but wonder how this applies to underage kids who are not (usually) working to support a family? Why not have a lower “minimum wage” in effect for those who are under 18 v.s. those who are over?

    I don’t know that I’ve ever seen a discussion on this specific point, and I’d genuinely like to read what the very thoughtful commenters here have to say on the matter so that maybe I can learn something new about this issue.

  2. Submitted by Todd Adler on 08/13/2013 - 09:56 am.

    Two Tiers

    I can imagine the first thing employers would do is put a greater emphasis on hiring under aged employees.

    Part of the problem we’re dealing with here is employers like to keep employees at less than full time. That way they don’t have to provide benefits, such as sick time, vacation, and health insurance. From the employee point of view though, that makes it harder for them to make ends meet as they string together multiple part time jobs in order to get enough wages to live. And if they’re sick, they simply don’t get paid. Vacations are also rare as it would mean unpaid time off, which is unfortunate as we all need our batteries recharged now and then in order to stay in top form.

    And lack of health insurance means even a small illness can be costly as medical expenses are out of pocket, in addition to the lost wages.

    While the minimum wage issue is important, it’s just one item in a long list of what ails our employment system.

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