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Did Henry Ford Pay Efficiency Wages?

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Author Info
Daniel M.G. Raff
Lawrence H. Summers

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Abstract

This paper examines Henry Ford's introduction of the five-dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination. Our general conclusion is that the Ford experience is strongly supportive of the relevance of these theories. Ford's decision to dramatically increase wages is most plausibly portrayed as the consequence of labor problems of the kind stressed by efficiency wage theorists. The structure of the five dollar day program is consistent with the predictions of efficiency wage theories. There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2101.

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Date of creation: Oct 1989
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Handle: RePEc:nbr:nberwo:2101

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  1. Wen-Ya Chang & Ching-Chong Lai, 1999. "Efficiency wages and the balanced budget theorem," Atlantic Economic Journal, International Atlantic Economic Society, vol. 27(3), pages 314-324, September. [Downloadable!] (restricted)
  2. Harry J. Holzer, 1990. "Wages, Employer Costs, and Employee Performance in the Firm," NBER Working Papers 2830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Mark D Brenner, 2004. "The Economic Impact of Living Wage Ordinances," Working Papers wp80, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  4. Riveros, Luis A. & Bouton, Lawrence, 1991. "Efficiency wage theory, labormarkets, and adjustment," Policy Research Working Paper Series 731, The World Bank. [Downloadable!]
  5. Måns Söderbom & Francis Teal & Anthony Wambugu, 2004. "Does firm size really affect earnings?," Development and Comp Systems 0409011, EconWPA. [Downloadable!]
  6. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21. [Downloadable!]
  7. Jeannette Wicks-Lim & Mark D Brenner & Robert Pollin, 2004. "Economic Analysis of the Florida Minimum Wage Proposal," Published Studies ps17, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  8. Robert Pollin & Stephanie Luce & Mark Brenner, 1999. "Economic Analysis of the New Orleans Minimum Wage Proposal," Research Reports rr1, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  9. Monique Ebell & Albrecht Ritschl, 2007. "Real Origins of the Great Depression: Monopolistic Competition, Union Power, and the American Business Cycle in the 1920s," SFB 649 Discussion Papers SFB649DP2007-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  10. Monique Ebell & Albrecht Ritschl, 2008. "Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s," CEP Discussion Papers dp0876, Centre for Economic Performance, LSE. [Downloadable!]
  11. Nikolaos Theodoropoulos & John G. Sessions, 2009. "Tenure, Wage Profiles and Monitoring," University of Cyprus Working Papers in Economics 5-2009, University of Cyprus Department of Economics. [Downloadable!]
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  12. Sonia Bhalotra, 2006. "Near rationality in wage setting," Applied Economics, Taylor and Francis Journals, vol. 38(21), pages 2513-2521, December. [Downloadable!] (restricted)
  13. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Working Papers 1997-006, Federal Reserve Bank of St. Louis. [Downloadable!]
  14. Harry J. Holzer & Edward B. Montgomery, 1990. "Asymmetries and Rigidities in Wage Adjustments by Firms," NBER Working Papers 3274, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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