Case Studies
Homes Sweet
 WWII was over. Millions of GI’s came home, fell in love, got married and started families. But there was one thing they all needed. A home and a roof over their heads. Depression and war had put homebuilding on hold for almost 20 years. What housing there was, was not cheap. Most were beyond the means of young vets with new jobs and new families. It was demand in search of supply.
Homebuilder William Levitt, the Henry Ford of the housing market, recognized the housing shortage and put money into building low cost housing. He laid out 6,000 lots on low cost, Long Island potato fields. He used assembly line methods to mass produce houses which would look very much the same. However, in a nation dedicated to individualism, would mass production houses have mass appeal?
The answer was a resounding yes. People were coming out from all over the country to get a home. Regardless of what the place looked like, it filled their needs for housing. Levittown type developments sprang up in every major city and it paid off financially but also had a great psychological payoff by giving families a stake in their community and their country.
American Mini -Steel
 For 75 years, U.S. steel producers had the steel market to themselves. They ran the big- so-called integrated mills. They set their own prices and own rules. In the 60’s and 70’s, as labor and energy costs rose, steel prices rose even more until foreign steel began to underbid American steel on American buildings and bridges. In the U.S. plants closed and workers were laid off. In seeking to see what could be done to rebuild the faltering steel industry,
Kenneth Iverson, President of NUCOR, wondered if low cost steel couldn’t be made in America. He decided it could by using Europe’s latest technology effectively lowering production costs. But what about labor costs? Lower prices of foreign steel makers were based on lower wages. However according to Iverson, "it’s not what you pay an employee that’s important. It’s what he produces." He was able to get his mini mill workers to produce at least 2 times that of the average integrated steel producer worker. This caused NACOR and other mini mills to become very efficient and profitable.
The lesson for the integrated steel mills is that they can compete if they seek new ways of doing business.
| Comment & Analysis by Richard Gill Markets can produce the unexpected. They can stimulate innovations, new products or new ways of producing products. The introduction of the mini mills in the steel industry was such an unexpected innovation. Richard Gill uses the supply and demand curve to explain. |
Take Me Out to the Ballgame
 The NY Yankees had fallen into hard times. In order to bring winning baseball back to Yankee Stadium, owner George Steinbrenner, of the New York Yankees, paid an enormous sum of money to buy the talents of Reggie Jackson. In 1976, that meant Reggie Jackson. Jackson was the biggest prize in that first free agent market. With an employee such as Reggie offering a rare skill and a following of paying customers Steinbrenner felt that the Yankees could afford the high salary that Reggie demanded.
So when hiring an employee means higher profits, most employers can see the higher salary as a good investment. In terms of the labor market, it helps to explain why there is a vast difference between the incomes of different people, even when they're on the same team.
Comment & Analysis by Richard Gill Once again Richard Gill uses the supply and demand curve applied to the prices of our services and income. If public demand is high for certain kinds of rare skilled labor (rock stars, ballplayers, and other celebrities), then customers and employers will be willing to pay much more for their services.
An underlying lesson is that the market doesn’t always produce a result we find personally agreeable, hence a talented athlete can earn more than the President of the United States. |
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