'It is not the employer who pays the wages. Employers only manage the money. It is the customer who pays the wage” (Henry Ford, quoted in Johnson and Weinstein 2004, p. 2). When the Ford Motor Company announced in January 1914 that it would more than double its workers' wages to the minimum of "five dollars a day," was that a contradiction to Henry Ford's statement? If customers are indeed the ultimate payers of wages, then more than doubling these wages can only be justified if, in some other way, it generates an equal or greater amount of value (through a better product, lower costs, or both). According to the theory of incentives and efficiency wages, this is indeed the case, and Henry Ford even stated that this decision was one of the best cost-cutting judgments ever made (Raff and Summers 1987). This article will outline the history of the 1914 Ford Motor decision and connect it to the theory of incentives and efficiency wages. The decision to implement the five-dollar daily minimum wage at Ford Motor came at a time when the company's workforce had grown more than thirty-fold in the past six years. Production had increased twenty-five-fold in the previous five years, and workers' tasks had become increasingly menial and repetitive, with no room for discretion. This led to widespread employee dissatisfaction, with turnover reaching 370% in 1913 (extremely high compared to other companies and industries). This level of turnover has been attributed to wage inequalities and poor working conditions as well as the monotony of the work. Absenteeism also increased dramatically. There were no formal holidays for the working class; therefore voluntary redundancies could be seen as a replacement for them. Despite all these problems, Fo...... middle of paper ...... day revolution, Ford corporate website, http://corporate.ford.com/our-company/heritage/historic-sites-news / Historic-Sites-News-Detail/677-5-dollar-a-day [Accessed December 6, 2011) Johnson, W.C. and Weinstein, A. (2004), Superior Customer Value in a New Economy: Concepts and cases, CRC Press (Google eBook) Laffont, J. and Martimort, D. (2002), The theory of incentives: the principal-agent model, Princeton University PressMankiw, G. (2011), Principles of Microeconomics, Cengage LearningMankiw, G and Taylor, M. (2006), Microeconomics, Cengage Learning EMEARaff, D. and Summers, L. (1987), 'Did Henry Ford pay efficiency wages?', Journal of Labor Economics, Vol. 5, no. 4, point. 2, pp. S57-S86 (October)Shapiro, C. and Stiglitz, J. (1984), 'Equilibrium unemployment as a worker discipline device', The American Economic Review, vol. 74, no. 3 (June), pp. 433-444