### Tutorial 2: How to Compare Money Values from Different Years

Joanna Short, Augustana College

Another common reason for using the Measuring Worth calculators is to compare money values from different years. Take for example the wages paid by Ford Motor Company. In addition to his innovations in automobile production, Henry Ford also radically changed worker compensation. In 1914, Ford announced he would pay workers meeting certain conditions five dollars per day, more than doubling the wages for most of his workers. Simultaneously, the work day was reduced from nine hours to eight hours.

Why did Ford increase pay dramatically? It does not appear that prior to the five-dollar-day, Ford workers were underpaid relative to the standard for production work at that time. A quick check of the Wage-U.S. series shows that production workers were paid an average of \$0.20 per hour in 1913. At \$2.34 per day (\$0.26 per hour) in 1913, Ford was already paying good wages. Apparently, the pay increase was a shrewd response to the high labor turnover at Ford, as workers there suffered from the more monotonous and fast-paced nature of assembly line work (see Raff and Summers, 1987).

Was Ford able to maintain his wage advantage over time? Ford wages fell briefly to \$4 per day in 1932 before increasing steadily to \$6 per day in 1935 (Harvard Business School, Lehman Brothers Collection) and \$21.34 per day in 1955 (Nevins and Hill). Let’s compare the wages of three generations of Ford workers. Suppose a father, son, and grandson all work at Ford; beginning in 1914, 1935, and 1955, respectively. Since we generally think of wages in hourly or annual terms, the starting hourly earnings of the three generations are summarized below:

Generation Year Wage (per day) Hourly Annual
Father 1914 \$5 \$0.625 \$1250
Son 1935 \$6 \$0.75 \$1500
Grandson 1955 \$21.34 \$2.66 \$5335

How about the grandson’s earnings relative to the son? By now, you should be able to confirm that the son’s earnings of \$1500 per year are worth \$2930 (again, deflating by the CPI) in 1955 dollars. Thus, the grandson’s \$5335 per year was considerably more than the son’s earnings.

More Practice Examples:

1. How much did the grandson, from the example above, earn in 1935 dollars? Who earned the most in 1935 dollars—father, son, or grandson?
2. Which cost more, or was worth more, in real (2017) terms?
1. The construction of Fenway Park: \$650,000 in 1912
The reconstruction of Yankee Stadium: \$1.5 billion in 2009
2. The federal minimum wage in 1938: \$0.25 per hour
The federal minimum wage in 2017: \$7.25 per hour
3. The president’s salary in 1969: \$200,000
The president’s salary in 2002: \$400,000
4. The prime minister’s salary in 1937: £10,000
The prime minister’s salary in 1982: £38,200
The prime minister’s salary in 2010: £150,000

Solutions:

1. Using the CPI (the real wage), the grandson’s wage is worth \$2740 in 1935. Thus, the grandson earned considerably more than the father (\$1770) or the son (\$1500) in 1935 dollars.
2. Use the relative values calculator’s results for a “project” for part a. For the rest, use the results for an “income or wealth.” Also, for part d, use the Relative values- UK £ calculator, for 2011.
1. The Yankee Stadium reconstruction cost much more: \$1.55 bill-\$1.69 bill (vs. \$11.3 mill-\$280 mill)
2. For all measures except the real wage (\$4.35), the minimum wage in 1938 (\$9.44-\$55.50) was worth more than the minimum wage in 2017 (\$7.25)
3. The president earned more, in real terms, in 1969: \$1.25 mill - \$3.19 mill (vs. \$498,000-\$592,000)
4. The prime minister earned the most, in real terms, in 1937: ( £529,500-£2,827,000)
Next most in 2010: (£153,700 - £155,100) or 1982: (£110,600-£205,000)