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Did Henry Ford Pay Efficiency Wages?

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  • Daniel M.G. Raff
  • Lawrence H. Summers

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.

Suggested Citation

  • Daniel M.G. Raff & Lawrence H. Summers, 1986. "Did Henry Ford Pay Efficiency Wages?," NBER Working Papers 2101, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2101
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