What do we mean by high wages, anyway?
We mean a higher wage than was paid ten months or ten years ago. We do not mean a higher wage than ought to be paid. Our high wages of to-day may be low wages ten years from now.
If it is right for the manager of a business to try to make it pay larger dividends, it is quite as right that he should try to make it pay higher wages. But it is not the manager of the business who pays the high wages. Of course, if he can and will not, then the blame is on him.
But he alone can never make high wages possible. High wages cannot be paid unless the workmen earn them. Their labour is the productive factor. It is not the only productive factor--poor management can waste labour and material and nullify the efforts of labour. Labour can nullify the results of good management. But in a partnership of skilled management and honest labour, it is the workman who makes high wages possible. He invests his energy and skill, and if he makes an honest, wholehearted investment, high wages ought to be his reward. Not only has he earned them, but he has had a big part in creating them.
It ought to be clear, however, that the high wage begins down in the shop. If it is not created there it cannot get into pay envelopes. There will never be a system invented which will do away with the necessity of work. Nature has seen to that. Idle hands and minds were never intended for any one of us. Work is our sanity, our self-respect, our salvation.
So far from being a curse, work is the greatest blessing. Exact social justice flows only out of honest work. The man who contributes much should take away much. Therefore no element of charity is present in the paying of wages. The kind of workman who gives the business the best that is in him is the best kind of workman a business can have. And he cannot be expected to do this indefinitely without proper recognition of his contribution. The man who comes to the day's job feeling that no matter how much he may give, it will not yield him enough of a return to keep him beyond want, is not in shape to do his day's work. He is anxious and worried, and it all reacts to the detriment of his work.
But if a man feels that his day's work is not only supplying his basic need, but is also giving him a margin of comfort and enabling him to give his boys and girls their opportunity and his wife some pleasure in life, then his job looks good to him and he is free to give it of his best. This is a good thing for him and a good thing for the business.
The man who does not get a certain satisfaction out of his day's work is losing the best part of his pay.
For the day's work is a great thing--a very great thing! It is at the very foundation of the world; it is the basis of our self-respect. And the employer ought constantly to put in a harder day's work than any of his men. The employer who is seriously trying to do his duty in the world must be a hard worker. He cannot say, "I have so many thousand men working for me." The fact of the matter is that so many thousand men have him working for them--and the better they work the busier they keep him disposing of their products. Wages and salaries are in fixed amounts, and this must be so, in order to have a basis to figure on.
Wages and salaries are a sort of profit-sharing fixed in advance, but it often happens that when the business of the year is closed, it is discovered that more can be paid. And then more ought to be paid. When we are all in the business working together, we all ought to have some share in the profits--by way of a good wage, or salary, or added compensation. And that is beginning now quite generally to be recognized.
There is now a definite demand that the human side of business be elevated to a position of equal importance with the material side. And that is going to come about. It is just a question whether it is going to be brought about wisely--in a way that will conserve the material side which now sustains us, or unwisely and in such a way as shall take from us all the benefit of the work of the past years. Business represents our national livelihood, it reflects our economic progress, and gives us our place among other nations. We do not want to jeopardize that. What we want is a better recognition of the human element in business. And surely it can be achieved without dislocation, without loss to any one, indeed with an increase of benefit to every human being. And the secret of it all is in a recognition of human partnership. Until each man is absolutely sufficient unto himself, needing the services of no other human being in any capacity whatever, we shall never get beyond the need of partnership.
Such are the fundamental truths of wages. They are partnership distributions.
When can a wage be considered adequate? How much of a living is reasonably to be expected from work? Have you ever considered what a wage does or ought to do? To say that it should pay the cost of living is to say almost nothing. The cost of living depends largely upon the efficiency of production and transportation; and the efficiency of these is the sum of the efficiencies of the management and the workers. Good work, well managed, ought to result in high wages and low living costs.
If we attempt to regulate wages on living costs, we get nowhere. The cost of living is a result and we cannot expect to keep a result constant if we keep altering the factors which produce the result. When we try to regulate wages according to the cost of living, we are imitating a dog chasing his tail. And, anyhow, who is competent to say just what kind of living we shall base the costs on? Let us broaden our view and see what a wage is to the workmen--and what it ought to be.
The wage carries all the worker's obligations outside the shop; it carries all that is necessary in the way of service and management inside the shop. The day's productive work is the most valuable mine of wealth that has ever been opened. Certainly it ought to bear not less than all the worker's outside obligations. And certainly it ought to be made to take care of the worker's sunset days when labour is no longer possible to him--and should be no longer necessary. And if it is made to do even these, industry will have to be adjusted to a schedule of production, distribution, and reward, which will stop the leaks into the pockets of men who do not assist in production. In order to create a system which shall be as independent of the good-will of benevolent employers as of the ill-will of selfish ones, we shall have to find a basis in the actual facts of life itself.
It costs just as much physical strength to turn out a day's work when wheat is $1 a bushel, as when wheat is $2.50 a bushel. Eggs may be 12 cents a dozen or 90 cents a dozen. What difference does it make in the units of energy a man uses in a productive day's work? If only the man himself were concerned, the cost of his maintenance and the profit he ought to have would be a simple matter. But he is not just an individual. He is a citizen, contributing to the welfare of the nation.
He is a householder. He is perhaps a father with children who must be reared to usefulness on what he is able to earn. We must reckon with all these facts. How are you going to figure the contribution of the home to the day's work? You pay the man for his work, but how much does that work owe to his home? How much to his position as a citizen? How much to his position as a father? The man does the work in the shop, but his wife does the work in the home. The shop must pay them both. On what system of figuring is the home going to find its place on the cost sheets of the day's work? Is the man's own livelihood to be regarded as the "cost"? And is his ability to have a home and family the "profit"?
Is the profit on a day's work to be computed on a cash basis only, measured by the amount a man has left over after his own and his family's wants are all supplied? Or are all these relationships to be considered strictly under head of cost, and the profit to be computed entirely outside of them? That is, after having supported himself and family, clothed them, housed them, educated them, given them the privileges incident to their standard of living, ought there to be provision made for still something more in the way of savings profit?
And are all properly chargeable to the day's work? I think they are.
Otherwise, we have the hideous prospect of little children and their mothers being forced out to work.
These are questions which call for accurate observation and computation.
Perhaps there is no one item connected with our economic life that would surprise us more than a knowledge of just what burdens the day's work.
It is perhaps possible accurately to determine--albeit with considerable interference with the day's work itself--how much energy the day's work takes out of a man. But it is not at all possible accurately to determine how much it will require to put back that energy into him against the next day's demands. Nor is it possible to determine how much of that expended energy he will never be able to get back at all.
Economics has never yet devised a sinking fund for the replacement of the strength of a worker. It is possible to set up a kind of sinking fund in the form of old-age pensions. But pensions do not attend to the profit which each day's labour ought to yield in order to take care of all of life's overhead, of all physical losses, and of the inevitable deterioration of the manual worker.
The best wages that have up to date ever been paid are not nearly as high as they ought to be. Business is not yet sufficiently well organized and its objectives are not yet sufficiently clear to make it possible to pay more than a fraction of the wages that ought to be paid.
That is part of the work we have before us. It does not help toward a solution to talk about abolishing the wage system and substituting communal ownership. The wage system is the only one that we have, under which contributions to production can be rewarded according to their worth. Take away the wage measure and we shall have universal injustice.
Perfect the system and we may have universal justice.
I have learned through the years a good deal about wages. I believe in the first place that, all other considerations aside, our own sales depend in a measure upon the wages we pay. If we can distribute high wages, then that money is going to be spent and it will serve to make storekeepers and distributors and manufacturers and workers in other lines more prosperous and their prosperity will be reflected in our sales. Country-wide high wages spell country-wide prosperity, provided, however, the higher wages are paid for higher production. Paying high wages and lowering production is starting down the incline toward dull business.
It took us some time to get our bearings on wages, and it was not until we had gone thoroughly into production on "Model T," that it was possible to figure out what wages ought to be. Before then we had had some profit sharing. We had at the end of each year, for some years past, divided a percentage of our earnings with the employees. For instance, as long ago as 1909 we distributed eighty thousand dollars on the basis of years of service. A one-year man received 5 per cent. of his year's wages; a two-year man, 7-1/2 per cent., and a three-year man, 10 per cent. The objection to that plan was that it had no direct connection with the day's work. A man did not get his share until long after his work was done and then it came to him almost in the way of a present. It is always unfortunate to have wages tinged with charity.
And then, too, the wages were not scientifically adjusted to the jobs.
The man in job "A" might get one rate and the man in job "B" a higher rate, while as a matter of fact job "A" might require more skill or exertion than job "B." A great deal of inequity creeps into wage rates unless both the employer and the employee know that the rate paid has been arrived at by something better than a guess. Therefore, starting about 1913 we had time studies made of all the thousands of operations in the shops. By a time study it is possible theoretically to determine what a man's output should be. Then, making large allowances, it is further possible to get at a satisfactory standard output for a day, and, taking into consideration the skill, to arrive at a rate which will express with fair accuracy the amount of skill and exertion that goes into a job--and how much is to be expected from the man in the job in return for the wage. Without scientific study the employer does not know why he is paying a wage and the worker does not know why he is getting it. On the time figures all of the jobs in our factory were standardized and rates set.
We do not have piece work. Some of the men are paid by the day and some are paid by the hour, but in practically every case there is a required standard output below which a man is not expected to fall. Were it otherwise, neither the workman nor ourselves would know whether or not wages were being earned. There must be a fixed day's work before a real wage can be paid. Watchmen are paid for presence. Workmen are paid for work.
Having these facts in hand we announced and put into operation in January, 1914, a kind of profit-sharing plan in which the minimum wage for any class of work and under certain conditions was five dollars a day. At the same time we reduced the working day to eight hours--it had been nine--and the week to forty-eight hours. This was entirely a voluntary act. All of our wage rates have been voluntary. It was to our way of thinking an act of social justice, and in the last analysis we did it for our own satisfaction of mind. There is a pleasure in feeling that you have made others happy--that you have lessened in some degree the burdens of your fellow-men--that you have provided a margin out of which may be had pleasure and saving. Good-will is one of the few really important assets of life. A determined man can win almost anything that he goes after, but unless, in his getting, he gains good will he has not profited much.
There was, however, no charity in any way involved. That was not generally understood. Many employers thought we were just making the announcement because we were prosperous and wanted advertising and they condemned us because we were upsetting standards--violating the custom of paying a man the smallest amount he would take. There is nothing to such standards and customs. They have to be wiped out. Some day they will be. Otherwise, we cannot abolish poverty. We made the change not merely because we wanted to pay higher wages and thought we could pay them. We wanted to pay these wages so that the business would be on a lasting foundation. We were not distributing anything--we were building for the future. A low wage business is always insecure.
Probably few industrial announcements have created a more world-wide comment than did this one, and hardly any one got the facts quite right.
Workmen quite generally believed that they were going to get five dollars a day, regardless of what work they did.
The facts were somewhat different from the general impression. The plan was to distribute profits, but instead of waiting until the profits had been earned--to approximate them in advance and to add them, under certain conditions, to the wages of those persons who had been in the employ of the company for six months or more. It was classified participation among three classes of employees:
(1) Married men living with and taking good care of their families.
(2) Single men over twenty-two years of age who are of proved thrifty habits.
(3) Young men under twenty-two years of age, and women who are the sole support of some next of kin.
A man was first to be paid his just wages--which were then on an average of about fifteen per cent. above the usual market wage. He was then eligible to a certain profit. His wages plus his profit were calculated to give a minimum daily income of five dollars. The profit sharing rate was divided on an hour basis and was credited to the hourly wage rate, so as to give those receiving the lowest hourly rate the largest proportion of profits. It was paid every two weeks with the wages. For example, a man who received thirty-four cents an hour had a profit rate of twenty-eight and one half cents an hour--which would give him a daily income of five dollars. A man receiving fifty-four cents an hour would have a profit rate of twenty-one cents an hour--which would give him a daily income of six dollars.
It was a sort of prosperity-sharing plan. But on conditions. The man and his home had to come up to certain standards of cleanliness and citizenship. Nothing paternal was intended!--a certain amount of paternalism did develop, and that is one reason why the whole plan and the social welfare department were readjusted. But in the beginning the idea was that there should be a very definite incentive to better living and that the very best incentive was a money premium on proper living. A man who is living aright will do his work aright. And then, too, we wanted to avoid the possibility of lowering the standard of work through an increased wage. It was demonstrated in war time that too quickly increasing a man's pay sometimes increases only his cupidity and therefore decreases his earning power. If, in the beginning, we had simply put the increase in the pay envelopes, then very likely the work standards would have broken down. The pay of about half the men was doubled in the new plan; it might have been taken as "easy money." The thought of easy money breaks down work.
There is a danger in too rapidly raising the pay of any man--whether he previously received one dollar or one hundred dollars a day. In fact, if the salary of a hundred-dollar-a-day man were increased overnight to three hundred dollars a day he would probably make a bigger fool of himself than the working man whose pay is increased from one dollar to three dollars an hour. The man with the larger amount of money has larger opportunity to make a fool of himself.
In this first plan the standards insisted upon were not petty--although sometimes they may have been administered in a petty fashion. We had about fifty investigators in the Social Department; the standard of common sense among them was very high indeed, but it is impossible to assemble fifty men equally endowed with common sense. They erred at times--one always hears about the errors. It was expected that in order to receive the bonus married men should live with and take proper care of their families. We had to break up the evil custom among many of the foreign workers of taking in boarders--of regarding their homes as something to make money out of rather than as a place to live in. Boys under eighteen received a bonus if they supported the next of kin.
Single men who lived wholesomely shared. The best evidence that the plan was essentially beneficial is the record. When the plan went into effect, 60 per cent. of the workers immediately qualified to share; at the end of six months 78 per cent. were sharing, and at the end of one year 87 per cent. Within a year and one half only a fraction of one per cent. failed to share.
The large wage had other results. In 1914, when the first plan went into effect, we had 14,000 employees and it had been necessary to hire at the rate of about 53,000 a year in order to keep a constant force of 14,000.
In 1915 we had to hire only 6,508 men and the majority of these new men were taken on because of the growth of the business. With the old turnover of labour and our present force we should have to hire at the rate of nearly 200,000 men a year--which would be pretty nearly an impossible proposition. Even with the minimum of instruction that is required to master almost any job in our place, we cannot take on a new staff each morning, or each week, or each month; for, although a man may qualify for acceptable work at an acceptable rate of speed within two or three days, he will be able to do more after a year's experience than he did at the beginning. The matter of labour turnover has not since bothered us; it is rather hard to give exact figures because when we are not running to capacity, we rotate some of the men in order to distribute the work among greatest number. This makes it hard to distinguish between the voluntary and involuntary exits. To-day we keep no figures; we now think so little of our turnover that we do not bother to keep records. As far as we know the turnover is somewhere between 3 per cent. and 6 per cent. a month.
We have made changes in the system, but we have not deviated from this principle:
If you expect a man to give his time and energy, fix his wages so that he will have no financial worries. It pays. Our profits, after paying good wages and a bonus--which bonus used to run around ten millions a year before we changed the system--show that paying good wages is the most profitable way of doing business.
There were objections to the bonus-on-conduct method of paying wages. It tended toward paternalism. Paternalism has no place in industry. Welfare work that consists in prying into employees' private concerns is out of date. Men need counsel and men need help, oftentimes special help; and all this ought to be rendered for decency's sake. But the broad workable plan of investment and participation will do more to solidify industry and strengthen organization than will any social work on the outside.
Without changing the principle we have changed the method of payment.
CHAPTER IX
WHY NOT ALWAYS HAVE GOOD BUSINESS?
The employer has to live by the year. The workman has to live by the year. But both of them, as a rule, work by the week. They get an order or a job when they can and at the price they can. During what is called a prosperous time, orders and jobs are plentiful. During a "dull" season they are scarce. Business is always either feasting or fasting and is always either "good" or "bad." Although there is never a time when everyone has too much of this world's goods--when everyone is too comfortable or too happy--there come periods when we have the astounding spectacle of a world hungry for goods and an industrial machine hungry for work and the two--the demand and the means of satisfying it--held apart by a money barrier. Both manufacturing and employment are in-and-out affairs. Instead of a steady progression we go ahead by fits and starts--now going too fast, now stopping altogether. When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction. We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction--that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction--it is either bad manufacturing or bad financing. Is business good or bad according to the dictates of fate? Must we accept the conditions as inevitable? Business is good or bad as we make it so. The only reason for growing crops, for mining, or for manufacturing, is that people may eat, keep warm, have clothing to wear, and articles to use. There is no other possible reason, yet that reason is forced into the background and instead we have operations carried on, not to the end of service, but to the end of making money--and this because we have evolved a system of money that instead of being a convenient medium of exchange, is at times a barrier to exchange. Of this more later.
We suffer frequent periods of so-called bad luck only because we manage so badly. If we had a vast crop failure, I can imagine the country going hungry, but I cannot conceive how it is that we tolerate hunger and poverty, when they grow solely out of bad management, and especially out of the bad management that is implicit in an unreasoned financial structure. Of course the war upset affairs in this country. It upset the whole world. There would have been no war had management been better.
But the war alone is not to blame. The war showed up a great number of the defects of the financial system, but more than anything else it showed how insecure is business supported only by a money foundation. I do not know whether bad business is the result of bad financial methods or whether the wrong motive in business created bad financial methods, but I do know that, while it would be wholly undesirable to try to overturn the present financial system, it is wholly desirable to reshape business on the basis of service. Then a better financial system will have to come. The present system will drop out because it will have no reason for being. The process will have to be a gradual one.
The start toward the stabilization of his own affairs may be made by any one. One cannot achieve perfect results acting alone, but as the example begins to sink in there will be followers, and thus in the course of time we can hope to put inflated business and its fellow, depressed business, into a class with small-pox--that is, into the class of preventable diseases. It is perfectly possible, with the reorganization of business and finance that is bound to come about, to take the ill effect of seasons, if not the seasons, out of industry, and also the periodic depressions. Farming is already in process of reorganization.
When industry and farming are fully reorganized they will be complementary; they belong together, not apart. As an indication, take our valve plant. We established it eighteen miles out in the country so that the workers could also be farmers. By the use of machinery farming need not consume more than a fraction of the time it now consumes; the time nature requires to produce is much larger than that required for the human contribution of seeding, cultivating, and harvesting; in many industries where the parts are not bulky it does not make much difference where they are made. By the aid of water power they can well be made out in farming country. Thus we can, to a much larger degree than is commonly known, have farmer-industrialists who both farm and work under the most scientific and healthful conditions. That arrangement will care for some seasonal industries; others can arrange a succession of products according to the seasons and the equipment, and still others can, with more careful management, iron out their seasons.
A complete study of any specific problem will show the way.