Why Henry Ford trumps Wal-Mart (Editor’s notes)

Paying workers higher wages creates healthy middle class and helps economy

Judging by the reaction of the Canadian Federation of Independent Business (CFIB), employers are more than a little leery of the concept of a living wage.

As outlined on page 3 of this issue, there is a movement afoot in at least four Canadian communities to establish living-wage policies. In a nutshell, the municipalities involved would commit to paying what is defined as a living wage in the community rather than settling for minimum wage. (The living wage being bandied about in Calgary, for example, is $12 an hour with benefits or $13.25 without benefits.) The municipalities would also require any contractors they do business with to fork out the living wage to employees, too.

The CFIB’s response is understandable. An employer’s gut-instinct reaction to higher wages is almost always, “No, no, no.” Private companies, after all, exist to make a profit and believe market forces should determine wages, not the policy of municipal governments. That is pretty sound logic.

And while municipalities aren’t setting new legal minimum wages with these policies, they are driving up wages because private-sector employers would have to follow suit to some degree to stay competitive.

But employers should resist the urge to rail against the higher wage. There are some pretty good arguments to suggest this approach will be good for the bottom line, which is what business is all about in the end.

I could cite studies, or remind HR of the basic principles that more money equals happier employees, which means more productivity and less turnover. But you know all that. So let’s frame it in a different light: Do you want the business world of Henry Ford or Wal-Mart?

Heady days of Model Ts

And I’m not talking the modern day Ford Motor Company. (Not many business professionals envy the auto sector at the moment. It’s in crisis and will have to reinvent itself.) I’m harking back to the early 1900s and the days of Model Ts and the concept of “Fordism” — the economic philosophy that widespread prosperity and high corporate profits can be achieved by high wages that allow the workers to purchase the output they produce

Ford was a smart guy. He figured out he could crank automobiles off an assembly line pretty fast. And if he could only find a market for those cars, he could make a fortune. But the problem was the average worker in North America couldn’t afford a car. So he created his own market, by paying his assembly line employees a higher wage so they could afford to buy the very products they were making, along with other products.

Ford essentially created the middle class and set the stage for unprecedented growth and prosperity that stretched far beyond Detroit.

Wal-Mart’s business model is comparable to Henry Ford’s. It too is creating its own market, but on the opposite scale. By paying its employees a low wage, most of them can’t afford to shop anywhere but Wal-Mart. But who, outside of Wal-Mart itself, is winning here?

Corporations aren’t altruistic by nature. But the odds are pretty good the majority of your customers, regardless of your industry, are in the middle class. Paying a living wage only bolsters the numbers of people in the middle class, which in turn should lead to economic growth and more sales. Thus, your bottom line goes up.

That’s why employers should embrace living-wage policies. And yes, all that good HR stuff still applies. So don’t fear the living wage. In all likelihood, it’s going to do your business more good than harm.

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