$5 a Day

A hundred years ago, Henry Ford started a revolution when he doubled down on employee wages. 

On January 5, 1914, the Ford Motor Company announced that the daily wage for qualifying unskilled employees would be raised from $2.34 per day to $5.00.  (Skilled tradesmen already qualified for higher wages than unskilled workers.)  At the same time, the workday was reduced from nine to eight hours.  Detroit was already a high wage town, and Ford’s move pressured his competitors to up their wages or risk losing valuable employees. 

Ford knew what he was doing.  Like his competitors, his company had a high turnover rate among workers doing heavy, monotonous, and sometimes dangerous work that often required extensive training.  Daily absenteeism averaged 10%, and it wasn’t uncommon for a Ford department to go through 300 employees a year to keep 100 positions filled.  Henry suspected the higher wages would increase employee motivation; if it didn’t, it would attract skilled replacement workers who would value their jobs.  Either way, product quality would be boosted.  And reducing the length of the workday actually permitted his plant to operate three shifts rather than two, thereby leveraging the economy of scale that permitted him to sell autos for lower prices than his competitors could afford to.

Ford was also aware that, by raising the incomes of his employees, he also was growing the base for his affordable vehicles.  He reportedly even spoke of the wage move as a form of profit sharing.

The January 5, 1914 announcement reverberated around the world.    The day after the announcement came out, 10,000 applicants showed up at the Highland Park plant.  By the time the new wage was implemented a week later, 12,000 applicants stood in line in the frigid weather.  Thousands of men and families moved to Detroit from the South seeking a better life.  Immigrants arriving at Ellis Island were asking directions to Ford in Detroit

Jobseekers crowd Highland Park plant January 6, 1914

 

Ford’s competitors predictably denounced the move.  The Wall Street Journal called it blatant immorality, writing that it brought “biblical or spiritual principles into a field where they do not belong.” More than one critic called Ford a mad socialist

Henry Ford’s gamble paid off.  Replacement hiring dropped from 53,000 in 1913 to 2,000 after the new wage structure was introduced.  Productivity soared.  Within four years, construction had begun on the mammoth River Rouge complex that would eclipse the Highland Park operation.  By 1921, Ford was producing a million Model T’s each year—ten times the output of its nearest competitor, Chevrolet.  The company’s own employees accounted for a large proportion of the sales.  By 1914, an assembly line worker could buy a car for four month’s pay.  The price of the standard 4 seat open touring car dropped from $850 in 1909 to $440 in 1915.  By the 1920’s, it had fallen to $260.

And the company’s bottom line flourished.  Company profits doubled from $30 million to $60 million between 1914 and 1916.

The Hidden Cost

But there was a hidden cost for the unprecedented wages.  Employees only qualified for the premium $5 wage after they’d been on the payroll for six months.  They also had to pass the scrutiny of Ford’s Sociologicial Department, whose 50 investigators were tasked with enforcing the edict that each worker receiving the premium wage must be “sober, saving, steady, industrious, and must satisfy . . . the staff that his money will not be wasted in riotous living.”  The inspectors were vigilant for drinking, gambling, family abandonment, or other moral offenses both in the workplace and in the home.  Premium workers found to be in violation of the company’s moral standards could find their wages reduced to the $2.34 per day rate.  Repeated violations could result in termination. 

Women employees weren’t eligible for the $5 wage unless they were single and supporting a family; married men didn’t qualify for it if their wives held a job outside the home.

Unfortunately, the improved worker retention limited the need for new employees.  Thousands continued to show up looking for what eventually became only a dozen or two jobs.  Police had to forcibly disperse the crowds, and windows in the Highland Park plant had to be replaced on a frequent basis.

The $5 premium wage marked a tipping point.  “Up to that bold moment in January,” wrote historian Douglas Brinkley in his book Wheels for the World, “no business had ever nodded to the importance of the labor in such a dramatic and costly way. The $5 Day marked, if any one date could, the end of the Gilded Age.”

Whose Idea Was It?

While Henry Ford is generally credited with coming up with the $5/day wage, the idea may have actually originated with James Couzens, the company’s general manager.  Couzens said: “It is our belief that social justice begins at home. We want those who have helped us to produce this great institution and are helping to maintain it to share our prosperity. We want them to have present profits and future prospects. . . .  Believing as we do, that a division of our earnings between capital and labor is unequal, we have sought a plan of relief suitable for our business.”

Couzens eventually had a falling out with Ford (as did many of Ford’s business colleagues), resigning his position in 1915 though he retained a seat on the Board of Directors.  In 1919, Henry Ford bought out Couzens’ shares in the company for $30 million.  (Couzens had gone deep into debt to raise the $2,500 to help found the firm in 1902.)

Couzens would go on to enter politics, serving as Detroit’s mayor from 1919-1922 and representing Michigan in the US Senate from 1922 until his death in 1936.  Ironically, the Senate seat that he was initially appointed to had been vacated by the resignation of Truman Newberry.  Newberry had won the seat in 1918 over the Democratic candidate . . . Henry Ford, who had been personally asked to run for the seat by President Woodrow Wilson.  Ford lost the 1918 race when he refused to finance his own campaign.  Newberry spent an estimated $190,000 on his campaign and narrowly won.

 

James Couzens
(1872-1936)