725. What Did Henry Ford Teach Us about Minimum Wages?

Hello, everybody. Welcome back to another episode of The Way the World Works. Today, I want to address an issue. Well, I want to talk about a fun historical story, but I want to overall teach a lesson, and that is it. Just because those of us that believe in individualism

and liberty and protecting those civil rights we have in the Constitution, just because we believe that government shouldn't do something doesn't mean we disagree with the thing that we don't want the government to do. Brittany, what in the world are you talking about?

Well, today I'm going to talk about that with the minimum wage. So minimum wage, and we've gone over this before, you see a lot of pushes from people saying the government should raise the minimum wage, the government should have this set to minimum wage,

not only that, then you have different states saying the state should set this minimum wage because the way minimum wages work is that there is a federal minimum wage. So that means the states can't pay less than that, but then each state could actually make that higher.

And some do, there was the fight for 15 a couple of years ago. And raising the minimum wage, especially if you're forcing a company to do it can sometimes spell financial devastation for those companies because not every company has the same amount of money,

and not every job has the same amount of skills. Sometimes, and not sometimes, all the time, like very low tier minimum wage jobs are entry level jobs. That's how you get your foot in the door, right? And then you prove your worth,

and you show you can do more and more, and you get raises and promotions, and that's how the world works. Hey, that's the name of this podcast. So I want to talk about minimum wage, but in terms of a story where somebody raised

the minimum wage for their company voluntarily, and what that can teach us. And that man was named Henry Ford. Now, Henry Ford is like, he's incredible for a lot of different reasons. He created like what we know of as the production line.

That's where, I mean, most of you know the production line where everyone has a specific job on that line, and you assemble or assembly line, and you assemble that, and that was allowing things to get made quicker and for less money.

And so, I mean, that was great. He, it's crazy to think that there was a time when people didn't think about things that way, but Henry Ford was incredible. Henry Ford is the reason that more people were able to have cars,

because you have to remember back then, cars are for the very wealthy, the very elite. But as soon as Henry Ford finds a way to produce his cars for cheaper because of these great production lines, more people have access to cars. So this is what makes things trickle down

and makes everybody have access to these things that were once, you know, for the privileged elite. So very cool. But he also did this whole minimum wage thing, which let's dive into that story now. So the year is 1914, all right?

It's January 15th, I believe 1914, and Henry Ford announces that he is raising the minimum wage for his company to $5 a day. Now again, today in today's terms, we hear $5 a day and we're thinking like, okay, well that will buy me literally nothing.

That won't even buy you a carton of eggs, right? So this is 1914, very different standard of living. But $5 a day was also double what the average person was making from a job like that. So this is huge. This is not just like, wow, he raised, you know,

to $5 a day, now we can maybe buy one more loaf of bread. Now this is huge, right? And obviously what's gonna happen when somebody does that, you're going to attract more workers, more people are gonna want to work there and you're gonna get a bigger pool

of really high quality people to choose from because now you have more people to choose from. So you're gonna have that bigger variety. But this is also huge because nobody pressured him to do this, no government told him to do this, he did it on his own.

And remember, people like to think of business owners as like these evil, greedy capitalists who are only thinking of themselves. But then we hear stories like this and you think like, no, not only are there great business owners who will offer a very good wage,

but maybe if they weren't forced to do it by the government, they would actually do it on their own and do it better, offer even more. So that's what we're gonna talk about today because this is happening at a very interesting time in history.

So in these like 19 teens, these teen years, this is where you're seeing the rise of like labor unions. This is where you're seeing the uprising of the workers, if you will. And surprisingly, this is actually when the first like red scare happened in America

because you have a lot of communists, socialist influence coming into these workers telling them like, you know, why should only private people own the means of production? We're the workers, we're doing this. And so it's this big worker revolution.

And it's very tumultuous. There's a lot of contention going on between business owners and their workers. And so for this to happen on this backdrop in this setting was again, just miraculous pretty much and a really good demonstration of how not evil

the free market can be. So when this happened, people are thinking this man is crazy. This man is gonna go bankrupt like this is awful. And I have to imagine that some of his other business, like other business owners in the sector and just elsewhere

were probably a little nervous because they're thinking like, why are you caving to the workers? But he wasn't. He was caving to, honestly, he was caving to what he thought was best for his company

to help create what it was. So it wasn't as crazy that we thought but there were definitely newspaper articles being like, this bro is nuts. So why was this even in his best interest? I mentioned getting higher quality workers

but keeping workers. So at this time the auto industry had like incredible turnover and what turnover means is he would hire people and they would quit and that cycle would repeat. They were quitting constantly. And sometimes it was even on the same day they were hired

and I did that was probably for many reasons but the assembly line needed people to function correctly. And so factories, not just Ford. Factories could not keep good people. And so Henry Ford is sitting there and he's like, okay, I want to make sure that if I'm hiring people

they're going to stay here because right now I'm hiring something like 50,000 workers a year to fill 14,000 positions. So that's how high the turnover is, right? And so he's like, okay, I got to put an end to this. Nobody else in my industry is what am I going to do?

And that high of turnover also comes with a lot of costs too because you have to train new workers and training costs time and money. Every time you're in training somebody that's time they're not spending actually doing the job you paid them to do

and then you sometimes have to hire trainers. Or the trainers who are also have a job to do are now having to take a day off to train the new people. So there are costs involved in that. And so it is very expensive. Also morale, you do want your workers to be happy

even though the worker union revolution wants to think that these workers are oppressed. I'm not saying that some workers weren't, everybody has bad bosses. But morale is important, right? To have that high morale,

to have people enjoying where they work. And let me tell you, money is a great incentive for that. It really is. And people who are building their skills, he wants to keep these experienced workers. He wants to keep his productivity up

because that is the whole thing that makes for so revolutionary. And he doesn't want people to leave for better paying jobs. And so he's like, this is in my best interest. He was incentivized, there's the magic word we love in the free market so much. He had many incentives.

He was incentivized to offer a higher wage because it benefited him and his company. And again, we have this society, this belief in our society that if somebody has any self-interest, if they benefit personally from something, then that thing is automatically bad.

And that is not true. Self-interest is an incentive. And that helps. And if that incentive is helping people make more money and doing it without the government, like, I'm all for it.

Do it. Do it if it's for self-interest. And that's exactly what Henry Ford was doing. It was in the best interest of him and his company to keep these workers, to keep productivity up. And so for that, he's like, all right,

this is what needs to be done. So the day before he does this, minimum wage is $2.25 a day. And again, it's just so weird to think about. So weird to think about, but again, inflation, which we know about, and rumor, it's 1914. So the Federal Reserve had just gotten into

to play the year before. And so they're not seeing even the full detrimental effects yet. So inflation is obviously going to skyrocket. And now we think $2.25 a day is wild. I didn't believe that anybody could even live off that.

So he doubles it to $5, that's huge. And the big key takeaways here, no law required it, no union forced him to do it. This is him saying, this is what I want to do. And what do you think happened? What do you think happened to the very next day?

Well, I will tell you. The next day, there were like 10 to 15,000 people lined up outside the Ford plant looking for jobs. And of course they are, this is like dramatic. So people get hired, turnover, that big, people hired and quitting, that completely drops.

It goes way, way down. Productivity, what do you think happens with that? Skyrockets, right? Productivity is like crazy. And the cost fell because workers were staying longer, which means less training, which means every time

they lost a worker, that's a little bit of productivity. That's a special job they lost, where now somebody else has to fill in for that. So this is huge for Henry Ford. It's huge for the workers. It is literally better for the economy.

Win, win, win is what we call that. Literally everybody wins, nobody loses. So what can we take away from this? Well, I think the biggest thing is that voluntary action in the free market not only can happen, but does happen. And it happened before the government told them to.

So when people think we need the government to control wages, and that's the only way people are gonna have a living wage, that's false. Because Henry Ford proved that that's not the case, that people, that companies, when left to their own devices and when left to operate based on their own incentives,

they will choose to do these things that people think we need governments or unions to do. And again, this is, honestly, this goes against unions narratives at the time. This goes against the unions being like, these companies don't care about us, blah, blah, blah.

So this is crazy. This is one of the biggest examples in history, especially during this time of the free market showing that they can voluntarily do these things, but people think we need the government to do. So very important, big important lesson for minimum wage,

for wages in general, and just proof that people will voluntarily do the right thing. You just have to give them the opportunity to. And don't force them. So we will leave it there, as always, don't forget to like and subscribe to the podcast.

And until next time, I will talk to you later.