|Today’s selection — from Railroading Economics by Michael Perelman. As the Industrial Age took hold, workers did not adapt well to the regimented hours and crushing and monotonous life in the factory. The problem became so pronounced that Henry Ford’s factories of the early 1900s had turnover of almost 400 percent — meaning he had to hire 50,448 men in a given year year to maintain a workforce of 13,623. So in 1913, he famously doubled wages — not as a matter of largesse but in order to reduce his expenses. However, as with all things involving Henry Ford, there was a catch:
“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.
“Turnover at the Ford plant had soared to 370 percent by 1913. The company had to hire 50,448 men just to maintain the 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 1,300 or 1,400 replacement workers without any experience. One observer remarked, ‘the Ford Motor Co. had reached the point of owning a great factory without having enough workers to keep it humming.’
“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. 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.’
The day after the Jan. 5, 1914, announcement of the 5-a-day wage an estimated 10,000 job seekers stood outside the Ford plant in Highland Park despite the frigid temperatures. /The Henry Ford
“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 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.
“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 Fordbegan the $5 wage, turnover fell dramatically to 54 percent, By 1915, it dropped still further to 16percent. Absenteeism also subsided, falling to 0.4 percent in 1914.
“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.’
“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.’
“For example, the company had to be ‘satisfied that he [ the qualified worker] will not debauch the additional money he receives.’ 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. Furthermore, the inspectors had to determine whether the workers displayed sufficient thrift, cleanliness, ‘good manhood,’ and good citizenship. Workers also had to tend gardens that the inspectors deemed to be adequate. Not surprisingly, during the 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.’
“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.’ “