Principles of Economics- Mankiw (5th) 583

Principles of Economics- Mankiw (5th) 583 - CHAPTER 26 U N...

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CHAPTER 26 UNEMPLOYMENT AND ITS NATURAL RATE 601 was profitable for the firm. Henry Ford himself called the $5-a-day wage “one of the finest cost-cutting moves we ever made.” Historical accounts of this episode are also consistent with efficiency-wage theory. An historian of the early Ford Motor Company wrote, “Ford and his as- sociates freely declared on many occasions that the high-wage policy turned out to be good business. By this they meant that it had improved the discipline of the workers, given them a more loyal interest in the institution, and raised their personal efficiency.” Why did it take Henry Ford to introduce this efficiency wage? Why were other firms not already taking advantage of this seemingly profitable business strategy? According to some analysts, Ford’s decision was closely linked to his use of the assembly line. Workers organized in an assembly line are highly in- terdependent. If one worker is absent or works slowly, other workers are less able to complete their own tasks. Thus, while assembly lines made production
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