- Biden’s $ 4 trillion infrastructure plan promises to raise some workers’ wages and create many jobs.
- The spending plans are like what Henry Ford and Jeff Bezos did: The two founders increased wages as their businesses grew.
- Ford and Bezos have increased their productivity, indicating that Biden’s plan could lift the middle class.
- See more stories on the Insider business page.
President Joe Biden is a middle class man. At least he tries to be.
He wants “good jobs, blue collar jobs, good paying jobs,” he said at a White House conference at the end of March. And he wants to give a rise to the middle class.
Its two-part infrastructure package promises, if passed by Congress, to create millions of jobs and give workers a raise. “It’s time to build our economy from the bottom up and from the middle,” he said when unveiling the package last month.
The number of jobs its offer would create is certainly in the millions, but the exact number is not clear. The Biden administration announced that the $ 2.3 trillion U.S. jobs plan would create 19 million jobs over the next decade, citing a Moody’s Analytics report. But this report actually says that 16.3 million jobs would come from the natural job growth and the $ 1.9 stimulus bill, and therefore 2.6 million new jobs would come from the infrastructure package. . But that’s still a lot of jobs.
As Insider’s Joseph Zeballos-Roig reported at the culmination of Biden’s first 100 days, this approach marks a departure from 40 years of presidential politics, when the country’s CEO lobbied big business, aka the private sector. , to get behind the wheel. But he shares something in common with two of the greatest business leaders of all time: Henry Ford and Jeff Bezos.
Raising wages has already been a big deal in Biden’s early months as president. He campaigned to raise the minimum wage from $ 7.25 to $ 15, but the $ 15 proposal was struck from his stimulus package for violating budget reconciliation rules. Today, the labor market recovery is weakening as employers typically do not raise wages, and April surprised on the downside with a gain of just 266,000 jobs. The average worker has not received a raise since the 1970s, with inflation-adjusted hourly wages rising only 0.2% per year. The average salary in 2018 had the same purchasing power as 40 years ago, according to Pew.
Biden’s infrastructure plan could improve working conditions. The plan focuses not only on creating jobs through investments in roads and bridges, but on funding social workers and tax incentives for child care in American workplaces. He also calls for an end to below-minimum wage provisions, whereby employers can pay workers with disabilities less than the federal minimum wage.
By taking a page from Ford’s playbook – and increasingly Bezos’ playbook – Biden could give the middle class a much needed boost.
Ford and Bezos raised wages to boost productivity
America’s industrial middle class has risen over the past century with the help of small mass production. In 1914, Ford Motor Co. founder Henry Ford offered factory workers $ 5 a day for eight hours of work. Equivalent to $ 120 in 2014 dollars, it was more than double the minimum wage at the time, NPR’s Sarah Cwiek reported.
Bob Kreipke, business historian for Ford Motor Co., told Cwiek that by raising the minimum wage, Ford intended to stabilize its workforce after the advent of conveyor belts which helped normalize the production. This move “has raised the bar around the world,” he said.
Sales declined as productivity accelerated, doubling Ford’s profits in less than two years. Ford later called the pay hike “the best cost-cutting action.”
This was the start of what we now call efficiency wages – paying above the market rate. This makes a job more desirable, creating a larger talent pool, thus making employees more replaceable. This encourages employees to slack off less, according to the Harvard Business Review.
Over a century later, another leader implemented a similar strategy. In early 2021, in fact, at the start of the Biden era, Amazon CEO Jeff Bezos announced a pay rise of up to $ 3 an hour for 500,000 workers as the company continues. to hire. It comes after Amazon set its minimum wage at $ 15 in 2018, higher than its biggest competitor, Walmart. Also this year, the company advocated for a federal minimum wage of $ 15, a key part of Biden’s policy. The federal minimum wage remains stuck at $ 7.25 an hour.
Bezos, who is completing his final year as CEO, said he aims for Amazon to become “Earth’s Best Employer and Earth’s Safest Workplace” in his latest letter to shareholders. He said he decided to “raise wages” because he wanted to bring competitors to a higher average hourly wage among other employers in the same job market.
“We are not done leading,” added the founder. “We will do this by continuing to be at the forefront of wages, benefits, skills development opportunities and in other ways that we find over time.”
Based on the concept of efficiency wages, HBR believes it’s possible that Amazon’s wage hike is just as successful as Ford’s. This could benefit Amazon by inducing better employee retention and productivity gains. Research has found that an unexpected pay rise motivates employees to work harder for the sake of reciprocity.
Biden’s plans could change the economy
Now, Ford and Bezos’ plans weren’t foolproof.
Business pay increases do not necessarily reflect a strong workforce. Productivity remains a controversial topic at Amazon, where drivers recently spoke of demanding delivery times that they say make them pee in bottles and spill blood in their pants rather than take a break. And while the company’s revenue exploded during the COVID-19 pandemic, workers said they were reprimanded for taking breaks to wash their hands and sanitize stations.
And, while Ford’s wage hike may have spurred a more prosperous middle class, the economy has since changed. The University of California, Berkeley, labor economist Harley Shaiken, told NPR that employers now view the lowest pay as the most competitive, and technology has taken precedence over stabilization. What worked to stimulate the middle class economy then may not work now.
An infrastructure plan that delivers on the promise of wage increases and new jobs for some workers could help boost the middle class even if the federal minimum wage stays where it is, as wealth inequality in the United States continues to dig.
Certainly, some of these gains could be offset by higher inflation. While it cannot yet be said that the economy is overheating, as some critics claim, there is a shortage of supply in everything from cars to spas to chicken due to pent-up demand triggered by reopening. Biden’s administration and the
insisted that these shortages – and the resulting price increases – are “transient” and reflect a bottleneck effect as the economy recovers. In other words, the economy should soon solve these problems. Again, this may not be the case.
While it may still be too early to measure the success of Amazon’s wage hike, and we may no longer live in Ford’s economy, the research is clear: Rising wages are motivating employees. . Seeing aspects of their strategies reappear in Biden’s infrastructure plan could be a game-changer for the economy.