"Higher wages were necessary, Ford realized, to retain workers who could handle the pressure and the monotony of his assembly line."
So in Ford's case, he was simply paying the going rate. Supply and demand. The lower wage wasn't enough to keep the workers he needed in his revolutionary assembly line. People spin this all the time to say things like: "He increased the wage so his workers could afford to buy his cars" But if it were as simple as that, he could have tripled or quadrupled their wages so they would buy even more or at a quicker rate.
He could have, like his competitors, continued to pay very little and gotten mostly the low-end quality workers. He'd have continued to make cars, but probably of lesser quality. He chose to pay the going rate for high quality workers.
It's also worth mentioning that a side effect of efficiency wages is more unemployment. Paying more results in a better class of applicant, meaning that people who would normally use WalMart as the bottom rung of their career ladder are shut out.
*Yes, Costco can do it, but Costco also has a very different business model.
This assumes that workers are of a fixed quality. I know I worked harder for $10/hour than I did for $7.25. Higher pay means stronger incentives to do well and less stress from poverty.
However:
Employers will have to hire fewer workers because their workers are more productive
More people will be interested in the jobs, increasing employee competition
Since people vary, some people's increase in productivity will be insufficient to cover the increase of wages
The end result it seems is that getting a job is made harder. This is not to say that increased wages are bad, they are great.
"increase in productivity will be insufficient to cover the increase of wages" is only true if the company isn't turning a profit or paying high salary to managers. This is relevant for some small businesses and bankruptcy-threatened large business, but not for the largest players in the economy, like Walmart.
2) Whether the company is turning or a profit or paying a high salary is completely irreleavent. The question is whether or not you are productive enough that hiring you makes the company more money then they pay you.
Efficiency wage theory definitely doesn't assume that. In fact, a big part of the theory revolves around your existing workers becoming more productive.
Even if you assume your applicant pool stays the same, you would see less turnover with efficient wages—and hence fewer job openings.
In higher populated areas, yes.
In lower populated rural/areas, not necessarily. In fact, by raising wages in rural areas, additional money coming in from income taxes could be funneled into infrastructure, poorly-funded schools, and law enforcement. This would in theory help produce new areas of innovation and growth which in turn help provide more tax revenue for the state and country. It could also bring more people out of poverty, reduce crime and violence, and help to shutdown meth labs which are more common in rural areas.
I think there are some good arguments against raising wages of workers, like much higher wage workers already making enough to be so comfortable as to not require more (depending on how they pay their employees if they are a small business), or to things such as some cases showing that raising minimum wage causes inflation which causes the quality of life of everyone over the minimum wage to go down, such as: http://www.latimes.com/opinion/op-ed/la-oe-0419-goldberg-min...
However, for most of those reading HN, salary raises have more to do with being competitive, in which case paying more for a better applicant is a good thing.
When a large employer raises its wage a big chunk of people who work a few hours at a second job stop working that second job.
With the U.S. underemployment rate at 12.9%, having additional jobs available for people to take shouldn't be a bad thing:
https://www.statista.com/statistics/205240/us-underemploymen...
Citation wanted. It really doesn't make sense. Sure, a different class of applicants may fill those higher paying positions, but either those people weren't employed to begin with, which contradicts your point, or they had to leave other jobs to apply for this one, creating open positions where they left, which results in overall employment staying the same.
In scenario 1, Person A works for Wal-Mart and Person B works elsewhere.
In scenario 2, Person A has no job, and Person B works at Walmart, and Person's B previous position is unfilled.
I will also grant that as wages rise, certain jobs simply cease to exist, because it becomes uneconomical to pay anyone to do them. Being from Denmark where wages are very high, I was astounded to be greeted by not fewer than ten clerks in a small, mostly empty Swatch store I visited in Beijing. To have that much staff to do mostly nothing can only happen where wages are extremely low. If wages were to rise, one by one those clerks would probably be laid off. But not because a more skilled person would claim their position, but simply because it would become too expensive to pay any person to do that job given the value it creates.
However, there are some additional factors that complicate this picture. If there are fewer unskilled jobs, people will adjust by working to become more skilled. If people have higher paying jobs they will spend more, producing more jobs. If there are many unskilled people looking for work, there is incentive for somebody to find a way to make use of that resource.
But really, the only point I sought to make here was that your original comment which didn't look at the non-skilled worker was missing a bit part of the equation, and so its logic didn't work.
We're doomed to repeat ourselves, as understanding complexity is not an easy thing to do, and it takes significant time, experience, and effort to unlearn your assumptions and learn to get closer to reality.
Ford created a morality department and forced their workers to follow his views of respectability (eg. prevent their wives from working), and to ask for permission before making large purchases, using investigators which would show up unannounced at their home to check up on their personal life.
Not only that, but after receiving some criticism on the issue, Ford realized his mistake and closed down the department saying that it wasn't his job to intervene in the lives of workers.
There's also the lovely Ford Hunger March: https://en.wikipedia.org/wiki/Ford_Hunger_March
On worker pay, Ford is a good model to emulate.
Also, I'm not sure I agree that Ford did pay more, since the string attached mean the jobs are different. If some company offered me 5% over my salary but required me to be on-call, I'd say they would actually be paying me less.
Specifically, "the Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than in a charitable manner for the benefit of his employees or customers."
These shareholders would likely win all the time under dodge v ford, but now they win some and lose some under business judgment rule based on the taste of the jurisdiction/jury. The reality is case law provides only some clues and the waters are muddy until a given set of facts is tested, and I'm not saying I like the shareholder maximization rule over business judgment but I do prefer bright line rules over balancing acts.
Also all the large tech players have done this to a large degree compared to non-tech who hire IT folks.
Didn't all the big tech players recently get sued in a class action for colluding to stifle worker's wages specifically by agreeing not to poach each others employees?
Costco stocks about 4000 usually larger, higher margin items in each of their stores.
Walmart stocks more than 100,000 items in their stores, many of them with very low margins.
So, the highest profit and customer satisfaction companies in Walmart's model & market get there by providing decent pay, benefits, and job security to workers plus treating them better in Publix case. Same pattern emerges in lots of other industries. Probably better than what Walmart was doing. That Walmart keeps copying Kroger and Aldi, but not Publix which is employee-focused ;), shows they know those methods are better. Their management greed and control-freak nature makes them adopt more selectively and slowly.
They don't have a full department store and will thus likely have a greater variety of groceries than the Walmart, but they don't have greater variety overall. I would argue that they are a 3rd variety of big box (along with mega stores and club stores), not the same as Walmart.
Edit: It should be noted that Kroger is moving that direction with its Fred Meyer-style stores. They're more like Walmarts and Targets. Walmart even converted a failed store into a Walmart once although Im not sure the size of that one. Kroger is opening a Fred-style store close to me with descriptions that sounded like a Walmart. Will be interesting to see if these work and what effect they'll have on profit.
They consciously raise wages to retain employees.
http://www.bloomberg.com/news/articles/2013-06-06/costco-ceo...
Sales per employee
Costco: $550,000
Walmart: $200,000
So now you need to find low skill jobs for a million people, at a time when automation technology is aggressively seeking to (and increasingly able to) wipe out those types of jobs. Oh yeah, and Walmart is very likely in permanent contraction mode already, in which its business will perpetually shrink on a year over year basis ala Sears and other past giants of retail, as Amazon + its far greater automation eats them. Good luck.
When you are willing to pay more, you can purchase higher quality; this is as true for labor as software or electronics.
You'd loose money. I've met many Costco employees. Most were either high-school students or older people without degrees who simply applied for the job or were referred then got through an interview. They care more about whether you'll work hard than anything else. Then they tend to stick around longer since they get paid and treated really well so long as they work hard. Lots of retail workers would like a job at Costco or a similar place but there's just few openings since people don't quit often.
Costco reps themselves already explained the extra pay was just incentive and that they believe in living wages. They also cancelled the ad bugdet specifically to give that money ("6% of revenue") to workers instead thinking good workers are better than advertising for customer retention. So, they consistently believe paying & motivating workers has highest benefits. They also pull from barely-educated sources who probably have above-average intelligence or character but still the common, low-rung pool of labor.
The point about the large packages and much smaller number of items was more that they need less labor to keep the shelves full.
In my opinion, tech companies pay market wages for a rare skill (being good at programming). Some will say this is arrogant, but it's just my honest opinion given my knowledge.
Not through choice. They are trying their hardest to bring down tech wages by:
* lobbying for more immigrants
* funding programs to bring more girls into computer science
* lobbying to put computer science on school curriculums.
* engaging in illegal no-poach agreements.
They are pretty damned determined.
*I have tried tipping the guys in the garage for tire services & have yet to get anyone to accept, they tell me they are paid well enough and it's against policy, etc... they say that even out at the smoking area, away from the cameras, too.
not even. There are many companies that pay higher-than-category wages just because they want to get the best employees possible. Look at what's happening in the Valley for the more popular companies. They pay more than average and give you tons of benefits on top.
http://www.saturdayeveningpost.com/2014/01/03/history/post-p...