In 1914, Ford Motor Company doubled its wage to $5 per day, a rate that was considerably above the average wage at that time.
a. In terms of efficiency wages, explain why Ford would have had an incentive to do this.
b. What data would you look for to determine whether Fords wage increase was successful in achieving its goals?
a)Ford Motor Company has doubled its wage to $5 per day due to efficiency wages .The idea of the efficiency wage theory is that it may benefit firms to pay workers a wage higher than their marginal revenue product. The argument is that paying workers a higher wage may lead to increased productivity from the worker. If a worker gets a relatively higher wage, he may feel more loyal and devoted to the company. With a higher wage, he may also fear being made unemployed and so will work harder to make sure he keeps his job….
e, although the firm pays more, they get more productivity from their workers. Also . Ford paying more , to decrease the attrition rate , as if the worker will be paid high , they will not leave the company. b) We will look at the worker’s productivity level i.e we look at the marginal revenue product obtained by the worker and attrition rate of the firm