Thursday 730

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 28 of 36 Unemployment
Section 20 of 21
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Henry Ford introduced modern techniques of production to the automobile industry.
Ford, rather than building expensive cars for the rich with small teams of skilled craftsmen, he built inexpensive cars for everyone on assembly lines with unskilled workers who performed repetitive simple tasks.
The output of this assembly process was the Model T Ford.
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In 1914, Ford introduced another innovation, the $5 workday.
It was about twice the going wage for unskilled workers, far above the equilibrium wage.
When the daily $5 wage was announced there were long lines of job seekers outside the Ford factories.
The number of workers willing to work at this wage far exceeded the amount of workers Ford needed.
Ford's high-wage policy had the effects predicted by efficiency-wage theory, absenteeism fell, turnover fell, and productivity rose.
Workers were so much more efficient Ford's overall production costs were reduced.
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An historian of the early Ford Motor Company wrote:
"Ford and his associates declared on many occasions the high-wage policy turned out to be good business.
It has improved the discipline of the workers, given them a more loyal interest in the institution, and raised their personal efficiency."
Henry Ford said the $5-a-day wage was one of the finest cost-cutting moves he ever made.
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Some analysts contend Ford's decision to pay $5 a day was closely linked to his assembly line process.
Workers in an assembly line are highly interdependent.
If one worker is absent or works slowly, other workers are less able to complete their tasks.
So, while assembly lines made production more efficient, they also raised the importance of low worker absenteeism and turnover and high worker effort.
As a result paying high efficiency wages was an optimal strategy for the Ford Motor Company.
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improved discipline of workers
roudou-sha no kiritsu no koujou
労働者の規律の向上
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If Ford workers were so highly paid why did the United Auto Workers eventually unionize Ford workers? ChatGPT:
High wages did not eliminate workers’ reasons for wanting a union.
Ford’s famous $5-a-day wage began in 1914, but it was partly an efficiency-wage policy designed to reduce enormous turnover, and workers had to meet Ford’s strict behavioral requirements to receive the full amount.
Over time, inflation and the Great Depression reduced the wage advantage.
Ford employees also faced exhausting assembly-line speeds, arbitrary discipline, little job security, and no independent procedure for challenging supervisors or dismissals.
Henry Ford strongly opposed collective bargaining, while his security organization under Harry Bennett intimidated and sometimes assaulted union organizers, most famously during the 1937 “Battle of the Overpass.”
Therefore, workers were not unionizing only to obtain higher wages.
They wanted a collective voice, enforceable work rules, protection against unfair discharge, seniority rights, grievance procedures, and influence over working conditions.
Furthermore, General Motors and Chrysler had already recognized the United Auto Workers, making Ford the last major holdout.
Ford workers voted for UAW representation in 1941, and Ford signed its first UAW contract on June 20, 1941.
In economic terms, an employer can pay an efficiency wage and still leave workers dissatisfied because high pay does not satisfy all worker demands and needs.
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Did unionization of U.S. automotive companies eventually contribute to the large quantity imports of cars into the U.S. starting in the 1970s? CGPT:
Yes, unionization contributed, but it was only one of several causes.
UAW contracts raised wages, pensions, health benefits, and work-rule costs at Ford, General Motors, and Chrysler.
These costs made American cars somewhat more expensive and made factories less flexible when companies needed to change production methods or reduce inefficient operations.
That gave lower-cost or more productive foreign manufacturers an advantage.
However, the surge in imports —especially Japanese cars during the 1970s and 1980s— was driven more directly by the 1973 and 1979 oil shocks, which sharply increased demand for small, fuel-efficient vehicles.
Japanese companies were already producing such cars, while Detroit remained heavily committed to larger vehicles.
Japanese manufacturers also developed advantages in reliability, quality control, production efficiency, and inventory management.
Studies found Japanese producers had achieved higher labor productivity than their U.S. counterparts by the late 1970s.
Union costs and restrictions did contribute to the weakening of the competitive position of American automakers.
U.S. car company management decisions, changing gasoline prices, vehicle quality, productivity, government regulations, exchange rates, and foreign competition all contributed to increased demand for imported cars.