Recently, there have been a number of posts online talking about how much Henry Ford paid his workers a century ago.
"After much trial and error, in 1913 Henry Ford and his employees successfully began using this innovation [the assembly line] at our Highland Park assembly plant. ... Yet while the work of assembling an automobile was now simplified, workers began to leave Ford Motor Company to work for their competitors. The reason was workers found the assembly line work boring as they were now doing only one or two task(s) instead of working to build an entire vehicle. ... In order to persuade workers to stay with Ford Motor Company, Henry Ford introduced the $5 workday. The $5 workday involved profit sharing payments that would more than double the worker’s daily wage, raising it to $5." - FORD company website
FORD DOUBLED HIS WORKERS’ WAGES TO GET THEM TO STAY
Turnover is very costly. In 1913, Ford hired 52,000 workers to get 14,000 to stay! Imagine training four workers and losing three of them, a nearly 75% rate of attrition. With this, and the resulting stops and starts, Ford could never keep his new production line going. Something had to be done: Ford doubled their wages.
ONLINE, CHATTER IS ABOUT FORD’S WAGES IN OUNCES OF GOLD
In 1913, the price of gold was fixed at $20.67 per ounce. This was a feature of the Gold Standard Act of 1900 defining the United States dollar by gold weight and requiring the United States Treasury to redeem, on demand and in gold coin only, paper currency.
Thus, Ford paid his workers ( $5 / $20.67 ) ounces of gold per day, about a quarter of an ounce. Today, as of the time of writing this post, gold is at $3,323.60. At this rate, Henry would have been paying his workers the equivalent of $830.90 per day, or more than $100 per hour for an eight-hour workday. While you can see why this makes great clickbait online, it’s pretty silly.
Let’s take a better gold value, one that removes some of the “noise” from the recent trade war and the new US Presidential administration, the weighted average gold spot price per ounce for last year (2024), approximately $2,158. Using this, Henry would have been paying his workers $539 per day or about $70/hour. It’s still silly, right? [The coin above, is a 1913 Indian $2.50 Gold Quarter Eagle, for sale at the time of this writing, for $599.]
It’s an important side note that Ford paid half the $5 daily wage in “cash” - - perhaps with the coin above[!] The other half of the pay was a $2.50 bonus, earned by performing good behaviors outside of the workplace. [This likely merits a post of its own.]
The highest paid line workers in the United States at this time are the workers at the unionized facilities of Ford, GM, and Stellantis. Following the recently-negotiated pay contract, workers are set to earn up to $42 per hour, or over $330 per day, by the end of the term in 2028.
What would this be in gold? A little over one-sixth of an ounce of gold per day, roughly 50% less than Ford payed his workers. Of course there are myriad other differences between the two jobs, benefits, working conditions, and more.
GOLD IS A FLAWED METRIC FOR COMPARING WAGES - - “Pee Pee Pee” OR “PPP” IS A SUPERIOR ONE - - PURCHASING POWER PARITY
Gold fails us as a metric of comparison for a variety of reasons. Our currency is no longer anchored to it, since 1971. Our dollar “floats”. Gold is a highly speculative assest, with a price that is highly volatile. The fact that gold changes rapidly and unpredictabley in price makes it hard to use in comparing the prices of things, including labor.
US television personality Tucker Carlson made news last year with his visit to a Russian grocery store. He reminded his viewers of the stories we heard in our youth: That the stores - - Soviet until 1990 - - had long lines of people, waiting outside to come in, to mostly-naked shelves with no choices but a few shoddily-made goods.
In stark contrast - - in spite of two years of Western sanctions - - the clean, cheerful stores are bursting with goods of all varieties in 2024. And, the goods are of high quality and … cheap. Tucker and his crew loaded his cart with groceries for a family of four for one week.
“I went from amused to legitimately angry. We were guessing what this would cost. … We came in around $104 US dollars. And that is when you start to realize that ideology maybe doesn’t matter as much as you thought. Corruption … If you take people’s standard of living and tank it, through filth and crime and inflation, and they literally can’t buy the groceries they want. … You’re wrecking peoples’ lives and their country. … And, coming to a Russian grocery store - - the heart of evil - - and seeing what things cost and how people live. … It will radicalize you.” - Tucker Carlson, Shopping in Russia, 2024
What Tucker is angry about, and something we can all relate to, is how much things cost in the United States - - how little we get for the money we earn and spend. He’s highlighting the point that, even in the middle of a war, even under international sanctions, the Russians are living fairly well. Their money “goes a long way”.
PURCHASING POWER PARITY COMPARES PEOPLES’ COSTS OF LIVING
Purchasing Power Parity (PPP) is a measure of the costs of goods in various countries. It makes a “basket” of goods and compares the price of this basket to the price of that basket of goods in other countries.
Think about it this way. Take Tucker’s $100US basket of goods in Russia and then recreate that same basket of goods in the United States. What angered Tucker, and what angers us when we go to the store, is that the US version would cost $400!
The measure is not without its flaws. But I want you to think in very simple terms. Imagine that you could live on Island A or Island B. You get paid twice as much on Island A as you do on B. On Island B, however, everything costs only one quarter as much as on A. Clearly, your standard of living is far higher on Island B, doubly so.
PPP HELPS US COMPARE WAGES PAID TO AMERICAN WORKERS TO THOSE ABROAD, ON AN “APPLES TO APPLES” BASIS
Let’s think about how to compare the wages of US workers to those abroad, in, let’s say, China. The general process is this:
I have an idea. Let’s do this for Tesla! Tesla has plants in the US and in China.
US Tesla worker has an average wage of $23 (USD) per hour [Wage importer / hour]
One yuan, ¥1 (CNY), is worth $0.14 dollars [Currency exporter / currency importer]
US Tesla worker’s wage in CNY is, therefore, $23/hour × ¥1/$0.14 = ¥164/hour [Wage of importer in exporter currency per hour]
PPP conversion factor for China is is 3.466 CNY for USD, meaning those 3.466 CNY have the same purchasing power in China as $1 does in the US [PPP exporter / Currency of importer]
Thus, the US $23/hour wage would have the same purchasing power as ¥80 (CNY) in China [Wage of importer in Purchasing Power in exporter country]
Chinese Tesla worker has an average wage of ¥84 (CNY) per hour [W exporter]
CHINESE TESLA WORKER IS MORE HIGHLY PAID THAN US COUNTERPART!
On a nominal basis, US Tesla worker earns ¥164/hour, more than the ¥84/hour of his Chinese colleague, but
On PPP basis, US Tesla worker falls behind with ¥80, vs. ¥84 for his Chinese colleague
US WORKER MAKES A NOMINAL WAGE DOUBLE THAT OF CHINESE, BUT CHINESE WORKERS’ LOWER WAGES MORE THAN OFFSET BY INCREASED PURCHASING POWER OF THOSE WAGES
We can take a few things away from this analyis. First, comparing wages of different workers on a “nominal” basis, how much they make in dollars (in the US) or yuan (in China), is not a good comparison. Second, PPP, or comparisons of how much given wages can purchase in terms of standard of living, is a far better comparison.
When we do this for Tesla in the United States versus China, we can see that the Chinese worker is not “underpaid” compared to their US counterpart. In fact, the opposite is likely to be true.
DOES THIS MAKE YOU RETHINK THE TARIFF WAR A BIT?
IF TARIFFS MERELY MAKE GOODS MORE EXPENSIVE FOR AMERICANS, THEN FOREIGN WORKERS BECOME EVEN MORE PAY-ADVANTAGED ON A GLOBAL BASIS!
Methinks this is worth further discussion and analysis.
Before I close, the same thinking might be applied to comparing the Ford worker of 1913 to the Ford worker of 2025. The relevant question is: What standard of living did the quarter-ounce-of-gold-per-day buy the Ford worker in 1913, versus the sixth-ounce-of-gold-per-day of the Ford worker in 2025?
US WAGES NEED TO GO UP and/or COST OF LIVING NEEDS TO GO DOWN
We’re in a pickle, as you can conclude. It is a tug of war betwen suppy and demand. For US workers to earn more, they must be more valued by their employers. This is difficult with imported labor (L1, H1B, EB5, etc.) and automation (AI and robotics). Will government policies help spur new demand for labor - - via a manufacturing renaissance in US goods? Can the high cost of living be lowered, making US wages more valuable on a PPP basis?
Only time will tell.