Sunday, September 9, 2012

Joe Coulombe and Henry Ford shared this philosophy

Judging from their choices of work attire, Henry Ford and Joe Coulombe
probably would not have agreed on much, but they both
came to the conclusion that better-paid workers resulted in higher profits for owners.

The web site could hardly be confused for a lily-livered liberal propagandist. One of its stories recently blamed Bill Clinton for the current U.S. economic malaise. But a recent post there caught my eye. It was on the subject of the way, in 1914, that Henry Ford doubled his workers' wages.

Ford's move is often characterized as triggering the rise of the American middle class. In that Business Insider post, Ed. in Chief and BI CEO Henry Blodget argued that Ford's move was in no way philanthropic, and that the oft-repeated view that he just wanted his own workers to be able to afford the cars they assembled is an oversimplification. Ford really wanted to retain skilled workers, and cut recruitment and training costs. As a side-effect of raising those wages, however, Ford forced other manufacturers to compete for the best workers, and created a large class of consumers with disposable income.

Blodget explains that by doing that, Ford made himself and other entrepreneurs richer; eventually all that money -- and more because the economy was growing -- came back to them. He argues that what America needs again is for capitalists to loosen the purse-strings on their large corporate profits, and pay workers more.

But Trader Joe's experience actually goes to show that the benefits of paying employees a little bit more aren't just indirect. Employers don't have to wait for increased wages to flow back through the economy -- at least, not in the retail environment.

In "Build a Brand Like Trader Joe's" I cite research and my own direct observation to prove that retail stores that have higher staff:customer ratios and pay better-than-average retail salaries have higher sales-per-foot and profitability than stores that attempt to control costs by minimizing staffing expenses. Two reasons this is especially relevant right now are, retail sales account for a very large percentage of U.S. economic activity -- far more than in other countries. And, most of the jobs the U.S. economy is adding right now are low-level 'service' jobs in sectors like retail.

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