Paying decent wages not just a fair go, it’s good for business too
The Daily Telegraph, 26 January 2018
In 1914, Henry Ford shocked America when he announced that he would double the pay of his workers, to $5 a day. He didn’t do this out of a sense of social justice or concern for his workers – remember that Ford Motors was known for its aggressive anti-union tactics. He did it because he understood the economic case for decent wages.
At a time when other car makers were trying to cut costs, Ford increased his wage bill by $10 million – more than half the firm’s annual profits. One competitor predicted that the workers wouldn’t know what to do with the extra cash – that they would be ‘demoralised by this sudden affluence’.
Ford saw it differently. As he explained in his autobiography, ‘The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.’
More than a century on, this basic principle – that workers and customers are the same group of people – still seems to elude Mr Turnbull and his conservatives. They fail to recognise that when you take money out of the pockets of employees, retail spending suffers. An economy with underpaid workers can’t support a thriving private sector.
On this Australia Day long weekend, thousands of people will be working in cafes and bars, tourism facilities and shops – so that everyone else can enjoy their time off.
But, thanks to Mr Turnbull’s support for cuts to penalty rates, these workers will have less in their money in their pay packet. This means that, as they knock off work, they have less money to put back into the economy – less money to spend on a coffee with friends, a small gift for the kids, or a movie out.
That’s why the support of every member of Mr Turnbull’s government for cutting penalty rates isn’t just unfair – it’s also bad for the economy. Under Mr Turnbull, wage growth has been lousy. For some workers, wage increases haven’t even kept pace with price rises. In economic jargon, their real wages are falling. Cutting penalty rates only makes the problem worse.
For Ford, the decision to double wages proved wildly successful. Productivity rose. Fewer workers left the company. Six years after the wage increase, the company was selling a million cars a year – three times as many as it had sold in 1914.
As Henry Ford summed up the decision: ‘We increased the buying power of our own people, and they increased the buying power of other people, and so on and on. It is this thought of enlarging buying power by paying high wages and selling at low prices that is behind the prosperity of this country.’
Ford’s decision wasn’t driven by altruism, but by economics. As he joked to one reporter: ‘The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made’.
This weekend, as we celebrate Australia, it’s worth remembering the egalitarianism that lies at the heart of our national identity. Paying decent wages isn’t just part of the fair go, it’s good for business too. That’s why Labor will always stand up for penalty rates.
Brendan O’Connor is the Shadow Minister for Employment and Workplace Relations. Andrew Leigh is the Shadow Assistant Treasurer. This opinion piece was first published online by the Daily Telegraph on Friday, 26 January 2018.