Ford doubled wages to cut turnover costs

The moving assembly line of 1913 made Ford's cars radically cheaper by making Ford's jobs radically worse — repetitive, relentless, interchangeable. Workers answered with their feet: turnover hit roughly 370%, daily absenteeism ran to a tenth of the workforce, and Ford hired some 52,000 men in a year to keep about 14,000 positions filled. Every departure meant training, errors, and stopped lines.

On 5 January 1914 Ford roughly doubled the prevailing wage to five dollars for an eight-hour day — half of it profit-sharing conditional on conduct. Crowds rioted at the gates for jobs; rivals called it economic madness.

Ford roughly doubled pay overnight. The wage looked insane and attacked the invisible cost: training churn, absenteeism, and the line stoppages they caused.

Doubled wages, betting that retraining replacements cost more than the visible payroll, so a high wage that kept workers was cheaper than a low one that let them leave.

High turnover forced constant hiring and retraining, which was expensive and disrupted production.

Doubling wages made jobs worth keeping, so workers stayed, reducing turnover and its costs.

Lower turnover meant fewer line stoppages and errors from new hires, boosting productivity.

Higher wages attracted a larger, better applicant pool, improving worker quality at no extra cost.

When churn is costly, paying more to retain can be cheaper than the hidden costs of constant replacement.

Turnover and absenteeism collapsed, productivity rose, the best workers queued at the gate — and workers could now afford the product. Turnover and absenteeism collapsed, output per man rose, and the wage paid for itself out of the churn it deleted — economists would later name the mechanism 'efficiency wages'. The popular retelling ('so his workers could afford the car') is romance; the documented driver was turnover.