Biden’s spending plans could lift wages from the bottom up. It’s a page out of Jeff Bezos’ playbook – or Henry Ford’s.

Joe biden
President Joe Biden’s infrastructure plan could boost the middle class. BRENDAN SMIALOWSKI/Getty Images
  • Biden’s $4 trillion infrastructure plan promises to raise wages for some workers and create many jobs.
  • The spending plans resemble what Henry Ford and Jeff Bezos did: both founders raised wages as their companies grew.
  • Ford and Bezos increased productivity, which signals that Biden’s plan could lift the middle class.
  • See more stories on Insider’s business page.

President Joe Biden is a man of the middle class. At least, he’s trying to be.

He wants “good jobs, blue-collar jobs, jobs that pay well,” he said in a White House conference at the end of March. And he wants to give the middle class a raise.

His two-part infrastructure package, promises to, if passed by Congress, create millions of jobs and give workers a raise. “It’s time to build our economy from the bottom up and from the middle out,” he said while unveiling the package last month.

Just how many jobs his package would create is definitely in the millions, but the exact number is unclear. The Biden administration has been messaging that the $2.3 trillion American Jobs Plan would result in 19 million jobs over the next decade, citing a report from Moody’s Analytics. But that report actually says 16.3 million jobs would come from natural job growth and the $1.9 stimulus legislation, and so 2.6 million new jobs would come from the infrastructure package. But that’s still a lot of jobs.

As Insider’s Joseph Zeballos-Roig reported at the culmination of Biden’s first 100 days, this approach marks a break with 40 years of presidential politics, when the nation’s chief executive incentivized big business, aka the private sector, to take the wheel. But it shares something in common with two of the greatest corporate chief executives ever: Henry Ford and Jeff Bezos.

Raising wages has already been a big issue during Biden’s first months as president. He campaigned on raising the minimum wage from $7.25 to $15, but the $15 proposal was struck from his stimulus plan for not meeting the rules of budget reconciliation. Now, the job-market recovery is faltering while employers are largely not raising wages, and April surprised to the downside with a gain of just 266,000 jobs. The average worker hasn’t received a raise since the 1970s, with hourly inflation-adjusted wages only growing by 0.2% a year. The average wage as of 2018 had the same purchasing power as it did 40 years ago, according to Pew.

Biden’s infrastructure plan could improve working conditions. The plan is focused not just on job creation via roads-and-bridges investment, but on funding for care workers and tax incentives for childcare to be provided at American workplaces. It also calls for an end to subminimum wage provisions, where employers can pay disabled workers less than the federal minimum wage.

By taking a page out of the Ford playbook – and increasingly the Bezos one – Biden could be giving the middle class a much-needed lift.

Henry ford
Henry Ford doubled the minimum wage of his time. Getty Images

Ford and Bezos raised wages to increase productivity

America’s industrial middle class ascended during the last century with the help of a little mass production. In 1914, Ford Motor Co. founder Henry Ford offered factory workers $5 a day for eight hours of work. Equivalent to $120 in 2014 dollars, it was more than double the minimum wage at the time, NPR’s Sarah Cwiek reported.

Bob Kreipke, corporate historian for Ford Motor Co., told Cwiek that, in raising the minimum wage, Ford intended to stabilize his workforce after the advent of conveyor belts helped standardize production. The move “raised the bar all over the world,” he said.

Turnover waned as productivity accelerated, causing Ford’s profits to double in less than two years. Ford later called the wage hike his “best cost-cutting move.”

It was the beginning of what we know today as efficiency wages – paying above the market rate. This makes a job more desirable, creating a larger talent pool, thereby making employees more replaceable. It incentivizes employees to slack less, per the Harvard Business Review.

Over a century later, another leader implemented a similar strategy. In early 2021, in fact, in the beginning of the Biden era, Amazon CEO Jeff Bezos announced a pay bump of up to $3 an hour for 500,000 workers as the company continues to hire. This comes after Amazon set its minimum wage at $15 in 2018, higher than its biggest competitor, Walmart. Also this year, the company advocated for a $15 federal minimum wage, a key policy item for Biden. The federal minimum wage remains stuck at $7.25 an hour.

Bezos, who is serving out his final year as CEO, said he aimed for Amazon to become “Earth’s best employer and Earth’s safest place to work” in his final letter to shareholders. He said he decided to “raise wages” because he wanted to lead competitors to higher average hourly wage among other employers in the same labor market.

“We’re not done leading,” the founder added. “We’ll do that by continuing to lead on wages, on benefits, on upskilling opportunities, and in other ways that we will figure out over time.”

Based on the concept of efficiency wages, HBR thinks it’s possible Amazon’s wage hike could be just as successful as Ford’s. It could benefit Amazon by inducing better employee retention and productivity gains. Research has found that an unexpected pay raise motivates employees to work harder out of a sense of reciprocity.

Jeff Bezos
Amazon CEO Jeff Bezos has lately moved to boost wages. Alex Wong/Getty Images

Biden’s plans could change the economy

Now, Ford and Bezos’ plans weren’t foolproof.

Company wage hikes don’t necessarily reflect a strong workforce. Productivity remains a controversial topic at Amazon, where drivers recently spoke up about demanding delivery times that they said incentivize them to pee in bottles and leak period blood into their pants rather than take a break. And while the company’s revenue exploded during the COVID-19 pandemic, workers said they were reprimanded for taking breaks to wash their hands and sanitize stations.

And, while Ford’s wage hike may have boosted a more prosperous middle class, the economy has since changed. University of California, Berkeley, labor economist Harley Shaiken, told NPR that employers now view the lowest wage as the most competitive and that technology has taken precedence over stabilization. What worked for boosting the middle class economy then may not work now.

An infrastructure plan that holds the promise of pay increases and new jobs for some workers could help boost the middle class even if the federal minimum wage stays where it is, as wealth inequality in the US continues to widen.

Granted, some of these gains could be offset by a rise in inflation. While the economy can’t yet be definitely said to be overheating, as some critics charge, it is seeing a supply shortage in everything from cars to hot tubs to chicken due to pent-up demand unleashed with reopening. Both Biden’s administration and the Federal Reserve has insisted these shortages – and resulting price rises – are “transitory,” and reflect a bottleneck effect as the economy kicks back into gear. In other words, the economy should work out these kinks soon. Then again, it might not.

While it may still be too early to measure the success of the wage hike at Amazon and we may no longer be living in Ford’s economy, the research is clear: increasing pay motivates employees. Seeing aspects of their strategies reappear in Biden’s infrastructure plan could be a gamechanger for the economy.