Henry Ford raising wage may give tip on worker prosperity

08:32, January 20, 2010      

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"Little" Xie says he wants to own one of the automobiles he helps build at Ford Motor Co's assembly plant in the Yangtze River city of Chongqing. With his mortgage payment taking about 60 percent of his 2,000-yuan monthly pay, that won't happen soon.

"It is not even worth talking about company incentives to help buy a car, since I can't afford one in the first place," said Xie, 28, a six-year Ford employee. Xie, whose nickname comes from his youthful age, asked that his full name not be used.

Higher wages for people like Xie would help resolve China's biggest economic challenge: shifting away from growth fueled by exports and investment and moving toward an economy driven more by domestic consumers. The country's leaders might learn a lesson about how to create a more prosperous working class from American industrialist Henry Ford.

The founder of the auto manufacturer that bears his name generated headlines around the world in January 1914 by doubling the average autoworker's pay to $5 a day. The move made Ford's Model T more affordable, created a more stable workforce and helped stoke the growth of the US middle class, according to Bob Kreipke, the historian for the Dearborn, Michigan-based company.

"This allowed people to increase their buying power and, at the same time, they produced a better product," Kreipke said.

Consumer culture

Low wages in the world's third-largest economy are slowing the rise of a consumer culture that President Hu Jintao and Premier Wen Jiabao have said China needs to maintain expansion at 8 percent a year to generate jobs for its 1.3 billion people. The current growth pattern is "unsustainable", Wen said on Dec 27.

That hasn't stopped China's auto industry from booming, with sales last year of 13.6 million vehicles, eclipsing the US as the world's top market for the first time, according to figures from the China Association of Automobile Manufacturers. The surge in purchases was spurred partly by government subsidies to help farmers buy automobiles.

Encouraging higher pay might help sustain the boom and boost consumption, which currently accounts for about 35 percent of China's GDP, compared with 70 percent in the US. It would also help ease income gaps between the rich and the poor, which are higher than that in South Korea at the similar stage of development.

Buying power

Ford's $5 daily pay allowed an employee to buy a Model T that cost $440 with the equivalent of about four months' wages. Chinese factory workers averaged 24,192 yuan ($3,544) a year in 2008, according to figures from the National Bureau of Statistics, so it would take more than three years worth of wages for them to afford the cheapest car advertised on the company's Chinese-language website: a four-door hatchback with a 1.3 liter engine listed for 78,900 yuan.

While the auto company declined to comment on worker pay, Ellen Hughes-Cromwick, Ford's chief economist, said Ford projects growth 10 years into the future for the countries where it operates, and it sees China's economy in a period of expansion characterized by rapid rises in employee compensation similar to South Korea's economy starting in the 1960s.

"We are at a situation where wages are moving up and doubling in a very short period of time," Hughes-Cromwick said in a telephone interview from Dearborn. "We do expect takeoff to generate pretty substantial wage gains."

China should spend more on education for peasants and migrants to raise their skill levels and employment prospects, said Xiao Geng, director of the Brookings-Tsinghua Center for Public Policy.

Henry Ford employed some of the millions of Eastern European immigrants who poured into the US a century ago, as well as migrants from the US South and Midwest lured by high wages. China's leaders must deal with hundreds of millions of rural laborers coming to cities, who put downward pressure on salaries.

Source: China Daily
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