Nobel for trio who theorized on joblessness
Source: Agencies |
October 12, 2010, Tuesday
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TWO Americans and a British-Cypriot economist won the 2010 Nobel economics prize yesterday for developing a theory that helps explain why many people can remain unemployed despite a large number of job vacancies.
Federal Reserve board nominee Peter Diamond was honored along with Dale Mortensen and Christopher Pissarides with the 10 million Swedish kronor (US$1.5 million) prize for their analysis of the obstacles that prevent buyers and sellers from efficiently pairing up in markets.
Diamond, a former mentor to current Federal Reserve chairman Ben Bernanke, analyzed the foundations of so-called search markets, while Mortensen and Pissarides applied the theory to the labor market.
Their work, dating back to the 1970s and '80s, sheds light on why the classical view of markets, in which prices are set so that buyers and sellers always find each other and all resources are fully utilized, doesn't always apply to the real world.
One example is the housing market, where buyers can struggle to find new homes though there are a number of unsold properties available.
Another is the labor market. Because searching for jobs takes time and resources, it creates friction in the job market, helping explain why there are both job vacancies and unemployment simultaneously, the Royal Swedish Academy of Sciences said.
"The laureates' models help us understand the ways in which unemployment, job vacancies and wages are affected by regulation and economic policy," the citation said.
The resulting work, called the Diamond-Mortensen-Pissarides model, is frequently used to estimate how unemployment benefits, interest rates, the efficiency of employment agencies and other factors can affect the labor market.
"One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times," the academy said.
Diamond, 70, is an economist at the Massachusetts Institute of Technology, and an authority on Social Security, pensions and taxation.
US President Barack Obama has nominated Diamond to become a member of the Federal Reserve. However, the Senate failed to approve his nomination before lawmakers left to campaign for the midterm congressional elections.
Inner workings
Senate Republicans have objected to what they see as Diamond's limited experience in dissecting the inner workings of the national economy.
Bernanke was one of Diamond's students at MIT. When Bernanke turned in his doctoral dissertation back in 1979, one of the people he thanked was Diamond for being generous with his time and reading and discussing Bernanke's work.
Pissarides, a 62-year-old professor at the London School of Economics, was the first Nobel winner with Cypriot citizenship, academy spokesman Erik Huss said.
Mortensen, 71, is an economics professor at Northwestern University in Evanston, Illinois. He is now a visiting professor at the University of Aarhus in Denmark.
Federal Reserve board nominee Peter Diamond was honored along with Dale Mortensen and Christopher Pissarides with the 10 million Swedish kronor (US$1.5 million) prize for their analysis of the obstacles that prevent buyers and sellers from efficiently pairing up in markets.
Diamond, a former mentor to current Federal Reserve chairman Ben Bernanke, analyzed the foundations of so-called search markets, while Mortensen and Pissarides applied the theory to the labor market.
Their work, dating back to the 1970s and '80s, sheds light on why the classical view of markets, in which prices are set so that buyers and sellers always find each other and all resources are fully utilized, doesn't always apply to the real world.
One example is the housing market, where buyers can struggle to find new homes though there are a number of unsold properties available.
Another is the labor market. Because searching for jobs takes time and resources, it creates friction in the job market, helping explain why there are both job vacancies and unemployment simultaneously, the Royal Swedish Academy of Sciences said.
"The laureates' models help us understand the ways in which unemployment, job vacancies and wages are affected by regulation and economic policy," the citation said.
The resulting work, called the Diamond-Mortensen-Pissarides model, is frequently used to estimate how unemployment benefits, interest rates, the efficiency of employment agencies and other factors can affect the labor market.
"One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times," the academy said.
Diamond, 70, is an economist at the Massachusetts Institute of Technology, and an authority on Social Security, pensions and taxation.
US President Barack Obama has nominated Diamond to become a member of the Federal Reserve. However, the Senate failed to approve his nomination before lawmakers left to campaign for the midterm congressional elections.
Inner workings
Senate Republicans have objected to what they see as Diamond's limited experience in dissecting the inner workings of the national economy.
Bernanke was one of Diamond's students at MIT. When Bernanke turned in his doctoral dissertation back in 1979, one of the people he thanked was Diamond for being generous with his time and reading and discussing Bernanke's work.
Pissarides, a 62-year-old professor at the London School of Economics, was the first Nobel winner with Cypriot citizenship, academy spokesman Erik Huss said.
Mortensen, 71, is an economics professor at Northwestern University in Evanston, Illinois. He is now a visiting professor at the University of Aarhus in Denmark.
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