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One Hundred Years of a Consumer Economy: Raise Minimum Wages

By       Message Joel Joseph     Permalink
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One hundred years ago the modern American, consumer-driven economy was born.  In January, 1914, Henry Ford started an industrial revolution by more than doubling wages to $5 a day--a move that helped build the U.S. middle class and the economy. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn't automatically apply to every worker, it more than doubled the average autoworker's wage.

While Henry Ford's primary objective was to reduce worker attrition--labor turnover from monotonous assembly line work was high--newspapers from all over the world reported the story as an extraordinary gesture of goodwill.

After Ford's announcement thousands of prospective workers showed up at the Ford Motor Company employment office. People surged toward Detroit from the American South and the nations of Europe. As expected, employee turnover diminished. And, by creating an eight-hour work day, Ford could run three shifts instead of two, increasing productivity. Henry Ford had reasoned that since it was now possible to build inexpensive cars in volume, more of them could be sold if employees could afford to buy them. The $5 day helped better the lot of all American workers and contributed to the emergence of the American middle class.

                                        Minimum Wages

Did Henry Ford's increase in wages cause prices to rise? 1913, the price of the basic Model T was $550.  It dropped to   $500 in 1914 and to $440 in 1915. Sales increased from 202,667 in 1913 to 308,162 in 1914.  In 1914, an assembly line worker could buy a Model T with four months' pay.  So Mr. Ford's doubling of wages did not cause an increase in prices:  in fact prices were reduced because of the increased volume of production.

Now assembly line workers are not paid minimum wages.  Most of those earning minimum wages work in retail, cleaning, fast-food and cashiers.  About five percent of the U.S. work force of more than 100 million are paid at or near minimum wage of $7.25 per hour.

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There are other real-life examples of companies that manage to pay higher wages and stay in business. In the fast-food industry, the In-N-Out burger chain starts employees at $10.50 an hour.  At Dicks Drive-In in Seattle, workers start at $10 per hour. Moo Cluck Moo, a burger chain in Detroit, pays $12 an hour. In retail Costco pays $21.96 an hour on average, while Idaho-based WinCo pays more than $10 an hour with good benefits while beating Walmart prices.  American Apparel, the hip manufacturer of T-shirts and hoodies, pays a minimum of $10 and also pays for their workers health insurance.

About 284,000 Americans with college degree were working for minimum wage in 2012, according to the Wall Street Journal. That's 70 percent more college grads working for the minimum wage than 10 years ago. Still, the number is down from its 2010 high of 327,000.

                                     Economic Stimulous

Most studies have shown that minimum wage jobs do not disappear when the minimum wage is increased. In fact some studies have shown increases in employment when minimum wages are increased.   Why?   Because those getting paid the minimum wage spend every penny they earn.   They buy more food, more gasoline, more clothing.   This increases economic activity is largely for the same companies that are paying minimum wages: McDonalds, Walmart, 7-11 and gas stations. 

   We should raise the minimum wage in this country to at least $10.00 per hour, possibly higher.  The entire economy, not just those earning the minimum, will benefit.

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Chairman, Made in the USA Foundation, economist and lawyer, author of ten books and hundreds of articles.

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