Students / Subjects

Handbook >> Unemployment >> Efficiency-Wage Theories >>

Henry Ford Case Study

Perhaps Henry Ford was the first to discover the full use of the efficiency-wage theories.  The Ford Motor Company began to pay its workers $5.00 per day in 1914 when the average wage at that time was between $2.00 and $3.00 per day.  This significantly increased the amount of people who were waiting in line to receive a job from this company.  Henry Ford believed that by paying above the equilibrium wage it would secure the business for the future. 

He seemed to think that by paying his workers a higher wage it would inevitably lower costs.  And evidence shows that this has been the case in production for the Ford Motor Company ever since.  Worker productivity increased across the board because they knew they were not going to find the type of pay they were receiving anywhere else.  It created an incentive for them to stay with the Ford company and work hard.  This is an example of the efficency-wage theories put to use and proven to actually work.


Copyright 2006 Experimental Economics Center. All rights reserved. Send us feedback