The German firm of Siemens and Halske introduced many enterprising features of what later came to be known as welfare capitalism in the mid-nineteenth century. Profit sharing, annual bonuses, a pension fund, a reduction in work hours, and an annual party were all means to ensure a productive, trouble-free workforce. We investigate the reasons why Siemens and Halske introduced this internal welfare system. We focus on the by-far most expensive part of the welfare system: the pension fund introduced in 1872, more than a decade before the nationwide social security system was implemented in Germany. We find that the adoption of the internal welfare system increased labor productivity, and in addition discouraged workers from striking. We estimate that the company's gains due to strike prevention and higher productivity were at least as high as the cost of the pension fund. This suggests that (1) the introduction of a pension fund is not inconsistent with simple profit maximizing behavior on the firm's side and (2) increased labor unionization induced firms to introduce subjective components of workers' remuneration packages.
- Welfare capitalism