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Old 07-14-2014, 10:36 PM
 
2,294 posts, read 2,633,031 times
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I came across an interesting article on Forbes regarding Henry Ford and his decision to pay his workers more. The basic argument on the site is that while it sounds nice to think he wanted to pay everyone enough to allow them all to afford his cars, the fact remains that you can't pay your workers a wage high enough to buy a luxury product or your wage costs will be astronomical (The article uses an example of Boeing employees who obviously can't be paid enough to buy planes.)

The interest part of the article comes afterwards, where it argues that the real reason Henry Ford increased his wages ($5 a day vs $2.50 a day) was in order to cut employee turn over because it was destroying profits. It then goes on to say that a higher wage is only useful towards cutting turn over if it's higher than other competitors. If all employers pay the same higher rate, it does nothing for turnover.

That raises an interesting point. Consider the minimum wage jobs of the economy, which all pay the minimum wage. There is very little price competition at that range. Take for example McDonald's vs Burger King. Both will start a new employee at minimum wage. Both are aware of this, and therefore there is no reason to offer more, because they know that if the person walks away, they'll just get the same minimum wage job somewhere else.

Consider an alternative scenario, without a minimum wage. Companies have to price workers based on demand. As McDonald's starts to lose workers due to turn over, it needs to raise it's wages because turnover has a very real cost. When people find out that you can make an extra $1/hr at McDonald's, Burger King would start to lose employees and have to increase prices to compensate. It could create an upward pay cycle, compared to today when both companies have a fixed level to start at.

The alternative is that it could go the other way. With no floor price and too much supply, McDonald's says it wants more profit and realizing it has a surplus of employees, it offers $1 less. Burger King realizes that employees are still working for McDonald's at less, so it drops to match. Overtime, it creates a down ward wage cycle because there are too many employees.

So my overall question is this:

Does the minimum wage prevent wage increase wars or prevent wage decrease wars?

Full article:

The Story of Henry Ford's $5 a Day Wages: It's Not What You Think - Forbes
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Old 07-15-2014, 05:36 PM
 
33,597 posts, read 17,591,211 times
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Wage decrease wars as we are competing with globalization, and soon automation. The automation going to kick the worlds rear end..
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Old 07-15-2014, 05:48 PM
 
Location: East of Seattle since 1992, originally from SF Bay Area
39,409 posts, read 70,677,323 times
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Minimum wage is just that, a minimum. Even McD and the like pay more when they have to. I remember when the one near us was paying $10/hour and people were taking the bus in from other, less affluent areas to work there because the local kids had all the money they needed from Mom and Dad. That changed some in 2008-2010. I also remember hiring a person from my business about 1998 for $8/hour, who had been making $7 at Burger King. The next week they called and offered her $11 because INS had raided them and they lost several illegals. (She stayed with me, for work more related to her college studies) I don't think the minimum wage prevents people from paying more, it's supply and demand like anything else. As long as there are people willing to work for minimum there is no nee to pay them more, and in those kinds of jobs, turnover is not an issue since so little skill is required. Not the same for automobile manufacturing, even back in Henry's day.
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Old 07-16-2014, 03:20 AM
 
Location: Connecticut
274 posts, read 491,791 times
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We have such a huge range of jobs and businesses in this country that such blanket statements about minimum wages really don't make sense. If a major retail like Walmart raised it's minimum wage it could make bigger and better spending customers out of it's employees. An large aircraft engine manufacturer could raise it's wages but it isn't going to gain them any new customers. Minimum wages do prevent industries like fast foods from banding together to reduce wages as a group. That by itself isn't enough to be a detriment to all wages in all industries. I used to work for a computer company where nobody got minimum wage. Increases in the minimum wage had no impact on what we were paid. Our wages were based on an entirely different group of factors. In the diner across the street it was the exact opposite. Minimum wage increases had a big impact on them.
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