The Reason for High Wages
Around 1913, Ford was experiencing extremely high turnover rates, only keeping 14,000 from his original workforce of 52,000. The reason for this was because the original wage, $2.25 for a nine hour workday, which was actually relatively good, was still not enough to keep the loyalty of workers toiling at the assembly line. The level of turnover was very costly because new workers required a long, expensive break-in period as well as training. To get workers to stay in his company, show up to work on time and sober, Ford would have to increase pay and shorten shifts. So he reduced the shift to eight hours and increased pay to $5 for eligible workers, successfully buying back his workers loyalty. It also boosted production rising from 170,000 to 202,000 cars made after the pay increase, and Ford actually saved money because of the lower training costs and low turnover.
The Legacy
Ford set an example of using pay increases to get production to improve. Nowadays, raises might be used to motivate a hardworking employee to continue working there and increase productivity and loyalty. It also might be used if turnover rates are high enough that the company is losing money searching for and training new workers. And by providing a better wage than other companies, Ford attracted the best workers, just how a successful company might to show that they have the best conditions and are the best place to work. As a side effect of the higher wages, Ford's workers could also afford the same products they manufactured, which expanded Ford's market, and made a growing middle class of high paid workers.
"There is one rule for the industrialist and that is: make the best quality goods possible at the lowest cost possible, paying the highest wages possible."