'It is not the employer who pays the wages. Employers only manage money. It is the customer who pays the wages” (Henry Ford, cited in Johnson and Weinstein 2004, p. 2). When the Ford Motor Company announced that it would more than double its workers' wages in January 1914 to a minimum of "five dollars a day," was this a contradiction of Henry Ford's statement? If customers are truly the ultimate payers of wages, then doubling wages can only be justified if, in some other way, it generates an equal or greater amount of value (either through a better product or through lower costs, or both). According to the theory of incentives and efficiency wages, this is indeed the case, and Henry Ford even claimed that this decision was one of the best cost-cutting decisions ever made (Raff and Summers, 1987). This article will trace the history of Ford Motor's 1914 decision and relate 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 times over the previous six years. Production had increased twenty-five-fold over the previous five years, and workers' tasks had become increasingly menial and repetitive, with no room for discretion. This led to widespread employee discontent, with turnover reaching 370 percent in 1913 (which was extremely high compared to other businesses and industries). This level of turnover has been attributed to wage inequality and inadequate working conditions, in addition to the monotony of the work. Absenteeism has also increased. There were no formal holidays for the working class; voluntary layoffs could therefore be considered as their replacement. Despite all these problems, Fo...... middle of paper ...... revolution of the day, 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, WC and Weinstein, A. (2004), Superior Customer Value in a New Economy: Concepts and Cases , CRC Press (Google eBook)Laffont, J. and Martimort, D. (2002), Incentive Theory: 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, part. 2, pp. S57-S86 (October) Shapiro, C. and Stiglitz, J. (1984), “Equilibrium unemployment as a device for disciplining workers”, The American Economic Review, Vol. 74, n° 3 (June), pp.. 433-444