How to Have High Wages, High Profits, and Low Prices
The Ford Motor Company of the early 20th century proved with bottom-line financial results that high wages are consistent and even synergistic with high profits and low prices. Henry Ford and his contemporaries such as Frank Gilbreth and Frederick Winslow Taylor recognized that enormous waste is built into most jobs at the expense of worker, employer, and customer alike. This webinar will show how the problem is usually correctable very easily once it is recognized, and also how to recognize it on sight.
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Why Should You Attend:
The prevalence of low wage jobs in the United States, along with offshoring of jobs to low-wage countries, is a clear and present danger to the affluence and economic security of the United States. This webinar will break the long-standing paradigm that wages, profits, and prices are a zero-sum proposition in which, if one stakeholder (worker, employer, or customer) is to have more than the others must have less. Attendees will learn that most jobs contain substantial and even enormous amounts of waste, and that removal of this waste enables simultaneously high wages, high profits, and lower prices that expand the market for the business' goods or services.
Areas Covered in the Webinar:
- About half of all U.S. jobs pay poor wages. This is symptomatic of low profits and inflated prices.
Industrialists such as Harrington Emerson, Henry Ford, Frederick Winslow Taylor, and Frank Gilbreth recognized and addressed the problem's root cause long ago. They realized that badly-designed jobs can contain enormous amounts of waste (muda) for which labor pays in the form of low wages, capital pays in the form of low (if any) profits, and customers pay in terms of higher prices.
- A new (2020) issue is the enormous Federal debt we have incurred in response to the coronavirus epidemic. The only way to pay off this debt is to increase taxable wages and profits, and the simple means with which to achieve this have existed for well over 100 years.
Opportunity cost consists of foregone revenue or profits from what we fail to do right, as opposed to the cost of what we do wrong.
- Emerson wrote, "Fewer men should work less hard, receive higher wages, and deliver a cheaper product," and Henry Ford achieved this decisively to make the United States the wealthiest and most powerful nation on earth.
- To this Ford added (My Life and Work, 1922), "It is not that the industrial enterprises are unable fairly to distribute a share of the wealth which they create. It is simply that the waste is so great that there is not a sufficient share for everyone engaged, notwithstanding the fact that the product is usually sold at so high a price as to restrict its fullest consumption." Frederick Winslow Taylor wrote essentially the same thing in Shop Management (1911).
- As but one example, Frank Gilbreth proved that brick laying, as practiced for generations, squandered about 64% of the worker's labor on waste motion. This resulted in low wages for the workers, high prices for the customers, and poor compensation for the builder.
- Emerson (The Twelve Principles of Efficiency) wrote that the Suez Canal was built by laborers who removed baskets of dirt by hand, while the canal cost $80 million rather than the $30 million originally planned (in the money of the 19th century). The Panama Canal was later excavated with steam power.
Carryover into agriculture; Henry Ford, who grew up on a farm, wrote that farm work wasted up to 95% of the farmer's labor on, for example, carrying buckets of water instead of installing a pipe to make the water carry itself. Little has changed since then.
- Opportunity cost is invisible to cost accounting systems because we cannot write it off on income tax returns and do not report it in corporate income statements.
- As but one example, the opportunity cost of having a dozen workers use mops to clean a floor instead of one worker using a machine is enormous.
- A supplier wanted to charge Henry Ford $152 per auto body (in the money of the early 20th century). Ford's production chief Charles Sorensen showed the supplier how he could charge Ford $72 per body while paying its workers higher wages and earning higher profits in the bargain.
"Automation 1, Luddites 0." A common, and centuries-old, objection to efficiency improvements is that they will put people out of work. One famous Luddite was Queen Elizabeth I, an otherwise very capable monarch who refused to grant a patent for an automated knitting machine for fear that it would put hand-knitters out of work.
- Farm workers are paid sub-minimum wages ($5.50 per hour) to pick crops by hand. Numerous photos and videos show workers bending over and walking, both of which Ford defined as waste motion. Inexpensive off the shelf solutions exist that can double (at least) the workers' productivity and reduce their effort but they are simply not being used. The result is not only that the workers get subsistence wages, the farmer gets meagre compensation as well while customers pay excessive prices.
When all stakeholders (labor, capital, and customers) recognize that wages, profits, and prices are not zero-sum or win-lose, but the equation is instead price = wages + profits + waste, the problem as well as its solution are obvious.
- The International Longshore and Warehouse Union (ILWU) opposed the introduction of bar code scanners that would have made 400 jobs unnecessary (even though the workers could apparently be reassigned).
- The truth is however that we cannot pay four people much more than subsistence wages to do one person's job, or to waste their time on unnecessary work. Henry Ford said, and proved, that efficiency improvements create more jobs, and higher-paying jobs, by reducing prices to make it easier to buy the product or service. The automobile was once a luxury novelty for very wealthy people but Ford's enormous reduction of production costs created millions of high-wage automotive jobs (including those in supporting industries) that had not previously existed.
Who Will Benefit:
- Managers with profit and loss responsibility, policy makers, unions and other labor organizations, people with purchasing responsibility, CEOs
From industries including manufacturing and service.
Principal Consultant, Levinson Productivity Systems
William A. Levinson, P.E., is the principal of Levinson Productivity Systems, P.C. He is an ASQ Fellow, Certified Quality Engineer, Quality Auditor, Quality Manager, Reliability Engineer, and Six Sigma Black Belt. He is also the author of several books on quality, productivity, and management.