Think a firm would pay its managers above-market wages

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Henry Ford famously paid his workers more than the market wage. In 1914 he told his board of directors that he wanted to pay $3 a day when the going wage was $2.20. One of the board members snidely asked why not pay $4 or $5 a day; Ford immediately agreed (much to the shock of the board) and started paying $5 a day. So, occasionally, firms find it beneficial to pay above (or even below) the equilibrium wage rate. a) Why do you think a firm would pay its workers (office, factory, etc.) above-market wages? b) Why do you think a firm would pay its managers above-market wages? c) Some firms used to set up employment contracts where workers were paid below-market wages early on and then above-market wages later in a worker’s career. Why do you think these types of contracts were used? Also seen with these contracts was a pre-determined mandatory retirement date; why would this be an important part of such a contract?

Reference no: EM13898421

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