Wednesday, December 4, 2013

History shows higher wages boost profits

    In the early 1950s, Walter Reuther, president of the United Automobile Work-ers union, and a senior Ford official were walking through a newly automated facil-ity for drilling engine blocks. The Ford official, pointing to the machines, asked Reuther, “Walter, how are you going to get those robots to pay your union dues?” Reuther didn’t hesitate. “Just how are you going to get them to buy your cars?” In that historic exchange is the crux of our current economic problems.
    In a capitalistic economy, those who create the supply are also those who create the demand.  
    One hundred years ago, on a single day, Henry Ford responded to this realization by more than doubling the average worker’s wages, paying $5 a day. He also created an eight-hour day, which allowed his plants to run three shifts instead of two, increasing productivity. What Henry Ford Sr. had figured out and what his manager failed to understand was that Ford’s workers and its customers were the same people.
    The middle class Ford Motor Co. had a central hand in creating has shrunk sig-nificantly. Owners and corporate execu-tives have managed to hold down costs, increasing productivity, but at the price of an increasingly impoverished workforce.
    The weekend after Thanksgiving, the malls were busy this year, but not in a buying frenzy. Instead of filling their bas-kets with a multitude of items, many shoppers were just picking up “basic ap-parel and door-buster deals,” says Brian Sozzi, CEO of Belus Capital Advisors, a research firm focused on the retail sector. Even Walmart’s sales have been flattening out recently.
    Retailers are concerned but they seem clueless about the solution. Business lob-byists in Washington press hard against any increase in the national minimum wage. Walmart scoffs at picketing employ-ees demanding at least $15 per hour.
    What opponents of higher wages over-look is the negative impact that low pay has on sales and resulting profits. One third of Walmart’s sales are to its own em-ployees.
    The federal hourly minimum wage of $7.25 means full-time workers trying to rear their children on $290 a week. The minimum in Georgia and Wyoming barely tops $800 a month. That makes it pretty hard to afford a new pair of shoes, much less a car.     
    Henry Ford knew that but we seem to have forgotten. By not considering the full consequences of low wages, the nation pays a terrible price.

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