Three Share 2010 Nobel Economic Prize
Peter A. Diamond, Dale Mortensen and Christopher Pissarides shared the 2010 Nobel Prize in Economic Sciences for research into the difficulties of matching supply and demand, particularly in the labor market.
“This year’s three laureates have formulated a theoretical framework for search markets” such as ones where buyers look for sellers and applicants look for jobs, the Royal Swedish Academy of Sciences, which selects the winner, said today in Stockholm.
Diamond, 70, is a Massachusetts Institute of Technology professor and a candidate for the Federal Reserve Board whose nomination has been held up by Senate Republicans. Pissarides, 62, teaches at the London School of Economics, and Mortensen, 71, is on the faculty at Northwestern University.
“These three guys have really changed the way people think about the labor market,” said Robert Solow, winner of the Nobel Economics Prize in 1987 and professor emeritus at the Massachusetts Institute of Technology, in a telephone interview. “Their work has been the foundation, the fundamental basis for understanding flows through the labor market and the way they’re influenced by things like” unemployment insurance benefits.
The research tries to explain such conundrums as how high unemployment can be accompanied by a large number of job openings. One conclusion is that more generous jobless benefits lead to higher unemployment as those who are looking for work take longer to find it, the academy said.
“The problem of unemployment is the major challenge facing policy makers today after the worst recession since the Second World War,” Professor John Van Reenen, director of LSE’s Centre for Economic Performance and a colleague of Pissarides, said in a statement. The work of the Nobel Prize winners is “fundamental to our analysis of aggregate unemployment and business cycles.”
Diamond, a former teacher of Fed Chairman Ben S. Bernanke, was nominated by President Barack Obama for a Fed governor’s seat in April, subject to confirmation by the Senate. The nomination was later returned to the White House because of objections from at least one unidentified senator. Obama resubmitted Diamond’s name on Sept. 13.
Richard Shelby, the senior Republican on the Banking Committee, called Diamond a “skilled economist” while questioning whether he has sufficient expertise in monetary policy to be a Fed governor.
“This just puts an exclamation point to Senator Shelby,” said Solow, 86, and a former teacher of Diamond. “He’s not just depriving the Fed of a good nominee but of one of the world’s half dozen best economists.”
Diamond’s research spans a wide range. His earliest work, published in the 1960s, focused on the long-term effects of the growing national debt on the economy.
In a paper written in 2005 with Peter Orszag, who stepped down as Obama’s budget director in July, Diamond argued that Social Security’s long-term financial health could be restored through modest cuts in benefits and tax increases.
They opposed then-President George W. Bush’s proposal to establish individual retirement accounts under Social Security, saying the system could be saved without radical reform.
Diamond has analyzed the effects of taxation on growth and is considered a pioneer in the study of optimal taxation, which has been applied to pricing by public utilities. His work has also focused on the inter-generational impact of different policies.
Diamond studied mathematics at Yale University and received his doctorate at MIT in 1963. He joined the MIT faculty in 1966 and headed the economics department in 1985 and 1986. Diamond was named an Institute Professor, the university’s highest honor, in 1997.
Pissarides, a native of Cyprus, made his reputation for his work on job flows and unemployment. He related job creation to the number of unemployed, the number of vacancies, and the intensity with which workers look for jobs and companies recruit applicants. The more eagerly job seekers look for work, the more jobs companies are likely to offer because it will be easier to fill them, according to Pissarides.
“I started immediately after graduating from university focusing on the problems of unemployment, which was on the rise back then in Europe continuously,” Pissarides said today in an interview. “Our work can help tackle unemployment,” he said. “If it becomes further known then it could influence policy makers.”
His research ’’has shown how labor market regulations, entry barriers to setting up new service firms, tax and welfare policies affect differences in employment across the world,’’ Van Reenen said.
Pissarides received his bachelor’s and master’s degrees in economics from the University of Essex and his doctorate from LSE in 1973. After a brief stint in the research department at the Central Bank of Cyprus in 1974, Pissarides entered academia and has been an LSE professor since 1986.
He is also a research fellow at the Center for Economic Policy Research in London and the Institute for the Study of Labor in Bonn, as well as being a member of the Monetary Policy Committee of the Central Bank of Cyprus.
Mortensen, 71, received a bachelor’s degree in economics from Willamette University in Salem, Oregon, in 1961 and a doctorate in economics from Carnegie-Mellon University in Pittsburgh in 1967.
A member of the faculty at Evanston, Illinois-based Northwestern since 1965, Mortensen has also served as visiting professor at the University of Essex in the United Kingdom, Hebrew University in Jerusalem and Cornell University in Ithaca, New York.
In his research, he found that labor-market rigidities can cause unemployment as job-seekers look for the best work at the highest pay. The intensity of that job search determines how long workers stay unemployed and in turn can be affected by changes in the level and duration of jobless benefits.
In seeking to explain why workers with similar skills end up being paid differently, Mortensen focused on their lack of knowledge of the wages being paid by all employers and on differences in pay policy and productivity among firms.
He is a past president of the Society of Economic Dynamics and one of the founding editors of the Review of Economic Dynamics.
The work of Diamond, Mortensen and Pissarides “is fundamental to modern thinking about unemployment,” Lawrence Summers, director of President Barack Obama’s National Economic Council, said in an e-mail.
As economics evolves, ’’their ideas will loom larger and larger in thinking not just about labor markets, but housing markets and many others,’’ added Summers, who is leaving the administration to return to Harvard University as a professor at the end of the year.
Alfred Nobel, the Swede who invented dynamite, in his will in 1896 established awards for achievements in physics, chemistry, medicine, peace and literature. The economics prize was set up by Sweden’s central bank in 1968. Former winners include Milton Friedman, Amartya Sen and Friedrich August von Hayek.
The award’s official name is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The money, 10 million kronor ($1.5 million), a gold medal and a diploma will be handed out at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death.
Indiana University professor Elinor Ostrom became the first woman to win the Nobel Economics Prize last year when she received it with Oliver Williamson of the University of California at Berkeley for their work on the limits of markets and how organizations work.
From 1969 to 2009, the Nobel Prize for economics was awarded to 44 Americans, eight economists from the United Kingdom, three Norwegians and two Swedes. Economists from Germany, France, the Netherlands, India, Israel, Canada and the former Soviet Union each won once.
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