More than 100 years ago today, why Henry Ford doubled employees’ wages and how it helped him

What could have led to the unforeseen rise and how did it impact Ford? We explain.

Moving assembly lines to increase wages

Established in 1903, Ford Motors initially used to have a system where workers ended up spending more time in the process of assembling different parts of a car. However, the man behind the company was keen for this to change.

Henry Ford pioneered a new method of production, called the moving assembly line. Here, instead of workers together producing a single car, each worker would be restricted to doing a specific task, over and over again. “The most common feature of this assembly line was the conveyer belt… Moving the product to the worker seemed like a better use of time and resources.”

In 1913, this process was successfully incorporated for the first time. Owing to the new method, the Ford Model T car was now built in only ninety minutes, compared to 12 hours previously. All its parts were interchangeable and this changed the role of workers.

Daniel Raff and Lawrence H Summers wrote in their paper ‘Did Henry Ford Pay Efficiency Wages’, that “In general, the work was brought to the workers, and the workers’ tasks came to involve less and less judgment and discretion. All this enabled production on an unprecedented scale”.

How work changed under assembly lines

Workers were now required to do more menial tasks, but they also needed to be adept at them to cope with the increasing market demand. This contributed to a situation of a high attrition rate among the employees.

In general, it is believed that a high rise in wages offered for a job would be because of a need for high-quality labour. However, even while Ford had problems retaining employees, there was a demand for its jobs among job-seekers nonetheless.

The authors of the paper added that the need for worker retention was felt despite this pool of potential workers. John R Lee, the first Ford personnel manager, helped devise a plan that included increasing wages by 15 per cent and organisational changes when it came to hiring and firing.

How wages were raised

What then led to the more to rise in wages could be either the desire to build on these changes, or even for Ford to garner publicity for his altruism. On January 5, 1912, it was announced that a week from then, pay would rise to $5 and work hours would be reduced from 9 to 8 hours.

But, there were conditions attached to this. Women and girls, and men below the age of 22 were ineligible. Additionally, as a 1914 Ford pamphlet said, “A worker is only put on the list of profit sharers (those eligible for the pay rise) after he has been carefully looked up and the company is satisfied that he will not debauch the additional money he receives”.

This meant that the company’s ‘Sociological Department’ would be tasked with checking the habits of workers with home visits as well.

Did the rise help Ford?

The authors added, “Despite the drastic increase in the wages Ford paid, total costs actually declined between December 1913 and December 1914, even fully counting allocated overhead. The sharp decline in the costs of materials corroborates the suggestion made above that the fraction of value added generated inside the Ford plant was increased in 1913.”

They wrote, “On balance it seems fair to conclude that Ford was able, by offering the five-dollar day, to reduce the turnover among his workers and to extract much more intensive, and generally productive, effort from them. These developments complemented the revolution in the production process, and so in work content, that Ford was bringing about. They allowed him to realize that revolution’s full commercial value.”

Ultimately, the decision to hike wages did help solve the issues of worker retention to a large extent. According to NPR, “Productivity surged and the Ford Motor Co. doubled its profits in less than two years. Ford ended up calling it the best cost-cutting move he ever made.”