Governor Wants to Have “Conversation” About Increasing State’s Minimum Wage

January 8, 2014

On the heels of a new law requiring some employers in the City of SeaTac to pay a $15 per hour minimum wage and Seattle giving every indication a similar wage will be mandated in that city, the Governor has signaled his support for increasing the state’s minimum wage.

Washington’s minimum wage, currently $9.32 and increasing every year according to inflation, is already the highest of any state in the nation.   The Governor did not specify what the higher minimum wage should be, only that it is “something we need to have a conversation about.” 

The Governor referenced the often-used tale of Henry Ford paying his workers more so they could afford to buy the cars they produced as evidence that every employer should be paying their workers more: 

“Look, Henry Ford understood that he had to pay his people decent so they could buy his cars so, yes, I think that having a healthy minimum wage is an actual good thing for the Washington state economy.” 

There are two problems with the Governor’s use of the Henry Ford anecdote.  The first is that Ford made the decision to pay his workers more voluntarily.  The business tycoon was not forced to do so by government as the Governor would like to do.  

The second point is that Ford did not selflessly increase his workers’ wages simply so they could afford a new car.  He increased their wages because it made financial sense for his business to do so.  The Model T was in high demand and there was a backlogged demand for the cars.   Ford needed to increase production to build more cars.  The problem was the workers he employed for $2.25 a day were dropping like flies.  Turnover and absenteeism were inordinately high, and morale low, in the tedious assembly line jobs.  An empty spot on the assembly line meant production stopped. 

In order to ensure sufficient workers for the company’s 14,000 jobs, the company had to hire and train 52,000 workers a year to replace those who walked off the job.  Ford made the decision to pay his workers $5 per day to ensure his jobs were the most coveted, reasoning few workers would walk off a job that paid twice what everyone else was paying.   Ford understood the key was to pay a higher wage than other employers, thereby creating an incentive for workers to stay.

It is also worth noting Ford’s pay hike came with strings attached.  The increase was not considered a wage, rather a “bonus” dependent on workers meeting certain character requirements.   Workers had to live by what Ford called “The American Way,” which was enforced by a committee known as the “Socialization Organization” that would visit employees’ homes to ensure compliance.  The “American Way” meant workers were not allowed to drink or gamble, immigrants had to learn English and attend classes to become “Americanized,” and women were not allowed to work out of the home unless they were single and supporting a family.

So despite the feel-good spin of the Henry Ford story used by the Governor and other supporters of government mandated high wages, the bottom line is it was basic economics that prompted Ford to decide to pay his workers more.  A simple cost benefit analysis that weighed higher wages against improved production and efficiency was the driving force.   It had nothing to do with empowering workers, rather with creating a stable and predictable workforce that would allow the production of more cars and make Henry Ford more money.

This leads into another point often used by supporters of a mandated high minimum wage—that a high minimum wage will actually save employers money by reducing employee turnover and the associated costs of recruiting and retraining new workers.  Sure, it worked for Henry Ford.  But even liberal economist Paul Krugman understands what Ford knew over a century ago, noting:

“…there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.”

Ford encouraged worker loyalty with wages that were higher than other companies. 

If every employer is required to provide the same high wages, turnover becomes a moot point because that high wage is no longer an incentive for an employee to remain with one employer over another.  So mandating a high minimum wage will do nothing reduce employee turnover and its associated costs.

Comments

So Soon!

Inslee has only been in office for a year, He is already paid too much and doesn't deserve another raise.

Inslee the labor expert

How would Inslee know anything about this topic?

We already have the highest minimum wage in the country.

He pretends that it will increase spending power and allow people to purchase more goods. He ignores that it will require those of us who now have spending power to lose it when prices go higher.