Economics - Headway

From Economic Theory to Financial Reality

Six months after an automobile factory has closed its doors, the ripple effects have spread throughout the region- al economy, negatively affecting a number of businesses and their employees. This fictional case study presents some short first-person accounts from many people experiencing the ripple effect

ripple effect: n. a gradual series of consequences that result from a single action or event

With demand for cars down dramatically,due to a government program to keep older cars on the market, a large auto manufacturer closed one of its plants in Northern Cali- fornia/Tennessee/a southern state. A little more than six months later, the economic ripple effects continue to spread in the region.

                        Paul, laid off line worker from auto plant

I’ve been out of work now for six months. When the plant closed, we got a decent package (including health- care benefits!), so I didn’t have to jump at the first job opportunity. Not that there are any real job prospects around here. At first, a lot of us hoped that the economy would rebound and they’d open the plant back up for at least one shift. If that happens (and I doubt it will), it won’t be any time soon.

I just can’t believe how much things have changed around here ...

 

Babek, Chief Financial Officer, tire manufacturing company

Ever since the plant closed ... we’ve barely survived. I’m the numbers guy, though, and I don’t see how we can do it for much longer. Obviously we knew we’d take a huge hit when the plant closed. We make tires! And they buy tires — well, they bought tires. For the last couple of years they bought fewer and fewer, but that was still a lot more than none. We’ve had massive lay-offs, eliminating a lot of salaries and costs for health insurance, but that goes only so far.

The numbers don’t lie ...

 

LaShea, real estate agent

Housing sales are in the dumps. Nobody’s buying, and nobody’s selling. Can you blame them? Home values are ... well, they’re really low. (I thought about expressing that in much more colorful language!) Home val ues were already on their way down across the country. A lot of us in the real estate business knew that the market would cool off — that prices couldn’t keep going up and that homes for sale would sit on the market for longer. But we went from cooling to deep freeze really quickly when the plant closed.

And I make my living on commission ...

 

Charles, mortgage broker (recently retired)

No commission means no revenue for me. I just went ahead and retired. Unfortunately, retired before Medi- care kicks in. But there was no work. I thought maybe I’d get some business helping people refinance their homes, but that amounted to very little. Honestly, I was looking to retire at some point soon. When times were good, I never worked Fridays and generally took a lot of time off. Straight commission can have its advantages! It gave me a taste for retirement. Unfortunately, it won’t be the kind of retirement I imagined it would be.

I mean, even eating out ...

 

Maria, server at a family restaurant

People just aren’t spending money on dining out like they used to. People would wait 45 minutes or more for a table, especially on weekends. It was THE place to be for families. It was loud. It was fun. It was ... Listen to me: “was”! It’s just not the same place. Definitely not for me. I would make about $75 a lunch shift and at least $100 for dinner. Not anymore — even with a bunch of different specials that we offer to get people in the door. I’m just not busy like I used to be.

We’re hardly ever full ...

Jacqueline, development director at community theatre company

We rarely have sell-outs like we used to. Clearly, a lot of people are unemployed, and a lot of people worry that they might be out of work soon, so everyone’s cutting back on spending. We’ve got a great “product” — live theatre is a special experience. And as a nonprofit that depends on volunteers like actors, set build- ers, and ushers, we have really low ticket prices. We realize that to get more people to donate money to the theatre (my main focus!), we have to get butts in seats.

We used to have a lot more people come from out of town ...

Bae, housekeeper at a large hotel

When the auto plant was open, we always had guests. People would come for a whole week for meetings at the plant. Sometimes they stayed, and their kids would come for the weekend. When you stay for a week, we get to know you a little bit. That helps for tips. When you stay for a long time, you also use the workout room. That place is always empty. We used to always take fresh towels in there — two or three times a day.
I don’t know if people are too depressed to work out ...

 

Curtis, YMCA staff member

I have to work out, or I get depressed! But our classes just aren’t as full as they used to be. A lot of people didn’t renew their memberships. In this economy, everyone’s keeping a close eye on their budgets and cut- ting where they can. Still, I was surprised at how many people stopped coming. Six months ago, we never had idle equipment during the evening spin classes. The pool almost always had people swimming laps. I definitely worry about losing my job and my health benefits. A friend who’s a personal trainer lost over half of her clients.

I know it’s about sacrifice. I just wish they’d sacrifice in other ways ...

 

Justin, high school student and tutor

I think tutoring really helps their kids, so it’s a shame that they’ve had to give that up. There’s more to it, too. Yeah, I help them with math, but it’s also time for kids who are struggling in school to be around a pretty good role model. Maybe even talk about things that they don’t feel comfortable talking about with their parents. Lots of parents are stressing about the economy about losing jobs and healthcare coverage, so it’s probably even more important right now.

And math’s not getting any easier for them ...

 

Paul, laid off line worker from auto plant

My twin boys used to have this great tutor named Justin. When I got laid off, Justin kept coming to the house for about a month to tutor the boys. We just can’t justify that expense anymore. For my kids, it was a teachable moment or whatever you want to call it. A tough thing to have to teach them, but their dad’s out of work.

A lot of things would be different if the plant hadn’t closed. 

 

Task: Describe the overall impact ofthe plant closing in the area.  How are people affected?  Where are the jobs?  Is unemployment enough?  What is the output of the plant?  Write an article for the local newspaper that shows the ripple effects of the plant closing.