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The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how mu

The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn. In this case production line workers were a relatively new thing, and Ford was helping to create a consensus about where they would fit in. Part of the reason why simple supply and demand doesn't dictate a single level of wages is that there's a good deal of flexibility in what doing a job entails. In this case it seems Ford was helping to decide that the workers would be skilled labourers: there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost. The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system. The alternative would presumably have been to try to organise the production line to require less training, and accept the efficiency loss in exchange for the lower wage bill.

whack 7y ago
> In this case it seems Ford was helping to decide that the workers would be skilled labourers When given a choice, employers would far prefer to commoditize their employees. It gives them far more power in the relationship and lowers their costs. Skilled workers are treated as such, not because employers want it, but because the circumstances don't give them a better choice. > there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost. This is exactly what the article says as well. Ford paid his employees very well to reduce turnover and its associated costs. Not because he was trying to create additional demand for his cars.
- mjw1007 7y ago
  He could be doing both. NB I have no reason to suppose the story is actually true. Very likely it isn't. But the motivation the story claims Ford had does make sense. He was in a position to influence other employers' decisions by reputation, not just via the price mechanism. If there's one equilibrium where factory workers in general end up as unskilled labourers, and another where they end up as skilled, the latter is better for Ford because of the products he happens to sell.
- vikramkr 7y ago
  I don't think it would always be that cut and dry, especially today where there are other mechanisms of keeping workers loyal/minimizing their power (stock options with vesting schedules, non-competes in some states, etc) having a differentiated workforce that isn't a commodity your competitors could tap into could be better
  - state_less 7y ago
    I agree, employers like to reduce cost by acquiring loyalty and encourage workers to look negatively at a lack of loyalty. For example complaints from management, "Hey, these job hoppers sure make the work harder." They could pay more as Ford did, but it's an attempt to color perceptions and purchase compliance (e.g. less turnover) at reduced cost.
    - zrobotics 7y ago
      Not sure why you were down voted, this is a very valid point. I ran the numbers for our customer service department and made the case for higher wages- our turnover isn't extreme but it is still expensive. Running the numbers, if we paid $1.50 more per hour we'd be in the upper end of our market, and assuming turnover dropped by 50% we would be saving money. Response from the CEO was essentially 'they aren't loyal enough'. To be blunt, I don't blame them for looking for better jobs, I wouldn't accept abuse from customers for the wage they are paying. Unfortunately, the CEO looks at it as a moral failing in those employees, vs. the fact that they aren't paid enough to give a shit. I lean libertarian, but it seems simple enough to me that paying people a decent wage can be good for the business. Asking for loyalty to a company is BS- I like my job, but the only reason I do it is that they pay me. I'm certainly not willing to volunteer to do this for free, and I wouldn't expect that the people manning customer support are any different. Expecting loyalty is ridiculous- its stupid that capitalists expect their employees to not be financially-motivated. Simply said, who is really motivated to be loyal to a company for shit wages?
      - Talanes 7y ago
        And yet when it comes time to discuss his pay, I'm sure the CEO does not describe himself as "not engendering loyalty."
tonyedgecombe 7y ago
In his book Shop Class as Soulcraft Matthew Crawford makes the point that Ford's employees found the work alienating. Many had been crafts people with a great deal of autonomy and they naturally found the production line unbearable. It took a lot of effort to change peoples attitude to factory work.
- burntoutfire 7y ago
  Did it ever change? I know that around here, when the weather is nice, after a shift a lot of the workers go straight onto the meadow behind the factory and drink heavily there. I don't suppose they drink because they're happy...
TopHand 7y ago
If you were to buy an inexpensive product to fulfill a certain need in your life, and that product failed before the need was fulfilled, you would not buy the identical product. You would spring for a more expensive product that would complete the need. You would demand a better product and the manufacturer would command a higher price. That is how the market works. If your workers were walking off the job to goto a job that was less tedious at the same pay, after you spent money on training them, the solution is to raise their pay high enough that they would stay and complete the task of building a cheaper automobile. You would demand a better quality of employee and they would in turn command more pay. Even modern employers usually require some "character requirements". When was the last time you worked for a company that would knowingly hire an employee who had a record? A drunk and disorderly conviction can keep you from landing a job. In my state flipping someone off in traffic is considered harassment, which a conviction would then bar you from some employment.
AmericanChopper 7y ago
It’s not clear to me why you think this isn’t supply and demand at work. Ford had a particular demand for labor, and the market had a particular supply of it. What you’ve described is Ford defining what he thought his business requirements were, making differentiation judgements about what kind of labor he wanted to hire, and coming to a conclusion about how much he was prepared to pay for it. The only factors I can see that would introduce inefficiencies to discovering an equilibrium price in this situation are that Ford was doing something brand new, so he perhaps didn’t know exactly what he had demand for, and he was doing it in the middle of the second industrial revolution, so the market conditions would have been changing perhaps more than usual.
- mjw1007 7y ago
  Ford claimed his motivation wasn't supply and demand for labour, but a wish that his workers should have been able to buy his product. Worstall says two things: - Ford's claimed motivation makes no sense; - there is a plausible motivation which does add up to supply and demand for labour. I claim Worstall is wrong about the former. I make no claim about what Ford's motivation actually was.
  - WalterBright 7y ago
    > I claim Worstall is wrong about the former. He'd be right. It's not possible to run a successful business by paying people to buy your product. The numbers don't add up.
    - icebraining 7y ago
      Ford never said he intended to make money by only selling cars to his employees! Only that the employees should also be able to afford the cars they were producing.
      - WalterBright 7y ago
        I didn't say "only", either.
brandmeyer 7y ago
> The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn. In my experience, this is exactly how business owners feel. The skyrocketing salaries of tech workers in recent years is a prime example. It isn't just supply and demand. Its also norm-breaking behavior by a handful of exceptionally profitable employers.
- bsanr2 7y ago
  The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you are - or rather, who is likely to be doing your job - absolutely helps determine pay rates. I have no doubt that the consternation regarding that "$70k for all employees" company extends to decision-makers, nor do I have trouble believing that the race/gender income gaps are not solely about job choice or negotiation skills or any of that. Whether its systemic or personal, there is definitely a decision being made as to how much this or that person "is worth."
  - WalterBright 7y ago
    Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%. https://en.wikipedia.org/wiki/Opportunity_cost https://en.wikipedia.org/wiki/Opportunity_cost Supply & demand forces will always be pushing things toward this value.
    - sandoooo 7y ago
      why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
      - WalterBright 7y ago
        > why 15%? Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him. The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.
whoopdedo 7y ago
> The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system. I won't say that wasn't part of it. But I see a stronger connection to risk management. Reducing turnover means making sure you hire people who won't suddenly be arrested, hospitalized, or forget because they're too drunk. And the language requirement makes sure everyone in the factory can communicate with everyone else. The rules for women are likely just sexism though.
gonational 7y ago
Wow, it’s almost as if market forces can, alone, determine the correct price for something...
williamDafoe 7y ago
Workers fluent in English and who didn't gamble or drink were much lower risk (in terms of theft and punctuality) and higher value to ANY employer. Ford wanted to verify that his higher wages were being spent wisely on a higher quality workforce . .
eru 7y ago
Do employers-as-a-class get together to talk about their feelings?

whack 7y ago

> In this case it seems Ford was helping to decide that the workers would be skilled labourers When given a choice, employers would far prefer to commoditize their employees. It gives them far more power in the relationship and lowers their costs. Skilled workers are treated as such, not because employers want it, but because the circumstances don't give them a better choice. > there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost. This is exactly what the article says as well. Ford paid his employees very well to reduce turnover and its associated costs. Not because he was trying to create additional demand for his cars.

mjw1007 7y ago
He could be doing both. NB I have no reason to suppose the story is actually true. Very likely it isn't. But the motivation the story claims Ford had does make sense. He was in a position to influence other employers' decisions by reputation, not just via the price mechanism. If there's one equilibrium where factory workers in general end up as unskilled labourers, and another where they end up as skilled, the latter is better for Ford because of the products he happens to sell.
vikramkr 7y ago
I don't think it would always be that cut and dry, especially today where there are other mechanisms of keeping workers loyal/minimizing their power (stock options with vesting schedules, non-competes in some states, etc) having a differentiated workforce that isn't a commodity your competitors could tap into could be better
- state_less 7y ago
  I agree, employers like to reduce cost by acquiring loyalty and encourage workers to look negatively at a lack of loyalty. For example complaints from management, "Hey, these job hoppers sure make the work harder." They could pay more as Ford did, but it's an attempt to color perceptions and purchase compliance (e.g. less turnover) at reduced cost.
  - zrobotics 7y ago
    Not sure why you were down voted, this is a very valid point. I ran the numbers for our customer service department and made the case for higher wages- our turnover isn't extreme but it is still expensive. Running the numbers, if we paid $1.50 more per hour we'd be in the upper end of our market, and assuming turnover dropped by 50% we would be saving money. Response from the CEO was essentially 'they aren't loyal enough'. To be blunt, I don't blame them for looking for better jobs, I wouldn't accept abuse from customers for the wage they are paying. Unfortunately, the CEO looks at it as a moral failing in those employees, vs. the fact that they aren't paid enough to give a shit. I lean libertarian, but it seems simple enough to me that paying people a decent wage can be good for the business. Asking for loyalty to a company is BS- I like my job, but the only reason I do it is that they pay me. I'm certainly not willing to volunteer to do this for free, and I wouldn't expect that the people manning customer support are any different. Expecting loyalty is ridiculous- its stupid that capitalists expect their employees to not be financially-motivated. Simply said, who is really motivated to be loyal to a company for shit wages?
    - Talanes 7y ago
      And yet when it comes time to discuss his pay, I'm sure the CEO does not describe himself as "not engendering loyalty."

tonyedgecombe 7y ago

In his book Shop Class as Soulcraft Matthew Crawford makes the point that Ford's employees found the work alienating. Many had been crafts people with a great deal of autonomy and they naturally found the production line unbearable. It took a lot of effort to change peoples attitude to factory work.

burntoutfire 7y ago
Did it ever change? I know that around here, when the weather is nice, after a shift a lot of the workers go straight onto the meadow behind the factory and drink heavily there. I don't suppose they drink because they're happy...

TopHand 7y ago

If you were to buy an inexpensive product to fulfill a certain need in your life, and that product failed before the need was fulfilled, you would not buy the identical product. You would spring for a more expensive product that would complete the need. You would demand a better product and the manufacturer would command a higher price. That is how the market works. If your workers were walking off the job to goto a job that was less tedious at the same pay, after you spent money on training them, the solution is to raise their pay high enough that they would stay and complete the task of building a cheaper automobile. You would demand a better quality of employee and they would in turn command more pay. Even modern employers usually require some "character requirements". When was the last time you worked for a company that would knowingly hire an employee who had a record? A drunk and disorderly conviction can keep you from landing a job. In my state flipping someone off in traffic is considered harassment, which a conviction would then bar you from some employment.

AmericanChopper 7y ago

It’s not clear to me why you think this isn’t supply and demand at work. Ford had a particular demand for labor, and the market had a particular supply of it. What you’ve described is Ford defining what he thought his business requirements were, making differentiation judgements about what kind of labor he wanted to hire, and coming to a conclusion about how much he was prepared to pay for it. The only factors I can see that would introduce inefficiencies to discovering an equilibrium price in this situation are that Ford was doing something brand new, so he perhaps didn’t know exactly what he had demand for, and he was doing it in the middle of the second industrial revolution, so the market conditions would have been changing perhaps more than usual.

mjw1007 7y ago
Ford claimed his motivation wasn't supply and demand for labour, but a wish that his workers should have been able to buy his product. Worstall says two things: - Ford's claimed motivation makes no sense; - there is a plausible motivation which does add up to supply and demand for labour. I claim Worstall is wrong about the former. I make no claim about what Ford's motivation actually was.
- WalterBright 7y ago
  > I claim Worstall is wrong about the former. He'd be right. It's not possible to run a successful business by paying people to buy your product. The numbers don't add up.
  - icebraining 7y ago
    Ford never said he intended to make money by only selling cars to his employees! Only that the employees should also be able to afford the cars they were producing.
    - WalterBright 7y ago
      I didn't say "only", either.

brandmeyer 7y ago

> The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn. In my experience, this is exactly how business owners feel. The skyrocketing salaries of tech workers in recent years is a prime example. It isn't just supply and demand. Its also norm-breaking behavior by a handful of exceptionally profitable employers.

bsanr2 7y ago
The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you are - or rather, who is likely to be doing your job - absolutely helps determine pay rates. I have no doubt that the consternation regarding that "$70k for all employees" company extends to decision-makers, nor do I have trouble believing that the race/gender income gaps are not solely about job choice or negotiation skills or any of that. Whether its systemic or personal, there is definitely a decision being made as to how much this or that person "is worth."
- WalterBright 7y ago
  Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%. https://en.wikipedia.org/wiki/Opportunity_cost https://en.wikipedia.org/wiki/Opportunity_cost Supply & demand forces will always be pushing things toward this value.
  - sandoooo 7y ago
    why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
    - WalterBright 7y ago
      > why 15%? Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him. The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.

whoopdedo 7y ago

> The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system. I won't say that wasn't part of it. But I see a stronger connection to risk management. Reducing turnover means making sure you hire people who won't suddenly be arrested, hospitalized, or forget because they're too drunk. And the language requirement makes sure everyone in the factory can communicate with everyone else. The rules for women are likely just sexism though.

gonational 7y ago

Wow, it’s almost as if market forces can, alone, determine the correct price for something...

williamDafoe 7y ago

Workers fluent in English and who didn't gamble or drink were much lower risk (in terms of theft and punctuality) and higher value to ANY employer. Ford wanted to verify that his higher wages were being spent wisely on a higher quality workforce . .

eru 7y ago

Do employers-as-a-class get together to talk about their feelings?