In 1914, Henry Ford doubled the wages of his workers, hoping to cut down on turnover. As a result, fewer workers left, people flocked to Detroit looking for work and productivity went up.
Also, Ford figured, since he was in the business of mass producing automobiles, workers making a good wage would be in a better position to buy his cars.
It all makes good economic sense. If you can raise productivity and create more consumers by paying better wages, everybody wins.
But what if the paradigm has shifted in this country? What if corporations have figured out a way to maximize profits without depending on American buying power, raking in money even when wages are low and joblessness is high?
If that's the case – and an increasing number of experts fear it is – we're in danger of seeing permanent, structural changes in our economic makeup. High jobless rates may become the norm, not just a temporary problem during a recession. Wages may trend lower, making it ever harder for families to make ends meet. And the enormous gap between the richest Americans and the rest of us – already the highest since the Gilded Age more than a century ago – will continue to grow.
Economists tell us that, technically, the current recession ended about a year ago. Looking at steadily rising corporate revenues and profits, they may be right.
The problem is, wages and employment haven't experienced an uptick, as they normally do when business recovers.
The reason appears to be, corporations are taking advantage of recent worker layoffs to increase productivity and squeeze more profit out of a smaller U.S. market. And instead of plowing the profits back into their businesses, they're socking the money away.
According to Harold Meyerson in the Washington Post, "A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that's the highest level since 1964."
A New York Times article spotlights one example: Harley Davidson. Their sales have been down for the last three years, yet their bottom line is looking great. "Harley reported a $71 million profit in the second quarter, more than triple what it earned a year ago."
How do you increase profits on lower sales? According to the article, "Harley … has announced plans to cut 1,400 to 1,600 more jobs by the end of next year. That is on top of 2,000 jobs cut last year – more than a fifth of its work force."
If corporations can make more money with less U.S. sales and fewer U.S. workers, that may be terrific for their bottom line, but it's very bad news for the health of our society.
There are other factors at work here, of course. Corporations are depending more on cheap labor in other parts of the world, and international sales are making up for lower sales in the U.S. But all these factors lead to the same very troubling outcome for Americans looking for work and hoping to make a living wage.
Blaming the business sector is pointless. The job of business is to create profits, not to employ lots of people at high wages.
Don't blame the unemployed, either. For every job opening, there are five people looking for work.
And it's more foolish than ever to rely on the conservative mantra, "Tax cuts create jobs," when corporations are squirreling away their profits under the mattress.
Government needs to play an active role in support of American workers. Remove tax breaks that encourage corporations to move production to other countries. Create financial incentives for corporations to invest here at home so they create the jobs Americans so desperately need.
If government policy does nothing to slow this trend – worse, if it helps companies maximize profits at the expense of American workers – we could be facing a future where high unemployment and low wages are no longer a temporary hardship but become a permanent condition.
Dave Safier is a regular contributor to Blog for Arizona.