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Good Business Basic

by Miki Saxon

http://www.flickr.com/photos/ashtr/6270726511/

Last month we looked at the economic dichotomy of having a consumer-based economy while simultaneously reducing wages.

Henry Ford understood that paying higher wages was good business.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.

Not to mention that a good part of that disposable income was used to buy Ford cars.

Business counters that idea by pointing to all the costs that didn’t exist in 1914 as justification for relentlessly cutting wages and benefits.

But nothing justifies the current minimum wage in many states.

Speaking of a hundred years, it took that long for new research by Zeynep Ton, a business professor at M.I.T.’s Sloan School of Management and author of “The Good Jobs Strategy,” to prove Ford was correct.

For every dollar of increased wages, one retailer that was studied by Fisher brought in $10 more in revenue. For more-understaffed stores in the study, the boost was as high as $28.

Not only doe it affect employees, but apparently higher wages has a halo effect on stock.

Costco pays its workers about $21 an hour; Walmart is just about $13. Yet Costco’s stock performance has thoroughly walloped Walmart’s for a decade.

Ton’s work is of major competitive importance whether you’re a boss in a small business or head up a giant enterprise.

Flickr image credit: ping.fm

One Response to “Good Business Basic”
  1. MAPping Company Success Says:

    […] Businesses on and off-line are working to improve your shopping experience, but most are unwilling to do what Henry Ford did 100 years ago. […]

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