Working Paper: NBER ID: w2101
Authors: Daniel M. 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.
Keywords: Efficiency Wages; Labor Economics; Ford Motor Company
JEL Codes: J31; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ford's decision to increase wages (J38) | high turnover and absenteeism (J63) |
| Ford's decision to increase wages (J38) | improved worker morale (J29) |
| Ford's decision to increase wages (J38) | reduced turnover (J63) |
| Ford's decision to increase wages (J38) | greater effort from workers (J29) |
| five dollar day (N12) | substantial queues for jobs (J68) |
| five dollar day (N12) | increase in productivity (O49) |
| five dollar day (N12) | increase in profits (D33) |