Henry Fords $5 workday Ford Motor Company’s decision to increase wages to $5 above market equilibrium was quite realistic considering the typical market wage in manufacturing that ranged from $2-3 per day. Economists perceive it rational for managers to pay its employees more than market-clearing wages to intensify their efficiency, reduce overall labor costs, eliminate structural unemployment, and enhance labor productivity. Although many condemned the move for fear that, the incentive might lead to immoderate shockwaves in the motor industry and the liquidation of the company, that never transpired (Bunzel, 187).
Apparently, statistics indicates that Ford was experiencing high rates of absenteeism and employee turnover. Offering the higher wages made the employees feel that they had the best deal ever as compared to the prevailing market conditions. The wage increment increased their morale and abridged the turnover rate. Although only workers who had worked in the business for more than 6 months were entitled to a $5 daily wage, more than 10000 workers sought employment in the company after the declaration of the upturn. The preeminent mechanics in Detroit flocked into the company bringing their skills, knowledge, and expertise a factor that significantly lowered the training costs and raised productivity of Ford. The company had to open new plants to accommodate the increased employee productivity and coupled it with vertical integration to enhance further proficiency and lucrativeness. The company’s productivity rose by 51% within a year.
The $5 incentive made the employees report to work early and work energetically to avert being dismissed from a job that pays comparatively high wages than alternatives (Bunzel, 167). Unlike the common credence is that the incentive was to empower the employees to afford the Ford’s product, it was intended to enhance workers health, effort, and quality while plummeting turnover. Ford cleverly employed the efficiency wage concept to enhance its
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