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April 24, 2014

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Letter to the editor:

Henry Ford and the minimum wage

Proponents for higher minimum wages conveniently ignore the immutable economic reality of supply and demand: When you increase the price (of labor), you decrease its demand (higher unemployment).

These same proponents often like to point to Henry Ford, who doubled workers’ pay from $2.50 to $5 a day so that the workers could be able to buy their product. This is flawed economics, skewed by ideology.

Ford paid $5 a day to offset the high turnover rate for mundane assembly-line jobs where he spent $100 to train workers who would quit after about a month. By doubling the pay and reducing workday hours from nine to eight, he was able to realize substantial savings that were greater than the increase in wages.

As a result, turnover and absenteeism virtually disappeared overnight. Production surged and profits skyrocketed. Ford cut the prices for the Model T by more than 10 percent in 1914, 1915 and again in 1916, thus making the cars more affordable to his workers.

Ford was able to pay higher wages only because it resulted in cost-cutting elsewhere. This resulted in increased productivity, which is the only way to raise the standard of living of a society.

It is not higher wages but greater capital investment in labor (new/better tools, machinery, etc.) that increases productivity.

We’ve had a substantial rise in productivity over the past four decades, but the associated rise in living standards has been stifled by the exponential rise in inflation that has occurred since going to a purely fiat currency in 1971. This is the real enemy that is destroying the middle class.

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