Monday, July 28, 2008

Sabotaging Chevy Vegas

I have an economics professor who is prone to cryptic off-hand statements that don't get explained. One day in class he was presenting a model in which a firms “effective” workers depends on their wage rate relative to the market wage rate. And unemployment got worked in there. (So if there is high unemployment, people are afraid to lose their job, and you don't have to pay them much to get a lot of work out of them.) Out of nowhere, the professor comments that when he was an adviser to Richard Nixon in 1970, there was a concern that the unemployment rate was too low and that “the guys down in Lordstown would start sabotaging Chevy Vegas,” and that it was therefore a goal of Nixon's to raise the unemployment rate.

I had a hard time dissecting this statement, but I think I've made some progress. If you understand a “labor extraction” model of wage determination, you know that the wage is always higher than would allow full employment. In fact, if it were at full employment, there would be the “whistle while you work” level of labor extraction. No one would work hard because they would get another job easily if fired. So perhaps Nixon was concerned that the unemployment rate was so low, people had no fear of getting fired, and this could lead to a revolution situation, wherein the workers at Chevy's Lordstown Assembly plant in Lordstown, Ohio would start to sabotage the Vega. Your thoughts?

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