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 labour 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 on Monday 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.
“Peter Diamond has analysed the foundations of search markets,” the academy said. “Dale Mortensen and Christopher Pissarides have expanded the theory and have applied it to the labour market. The laureates’ models help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy.”
Search theory 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.
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 September 13.
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 analysed 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.
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 on Monday 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 found that faster productivity growth increases the demand for labor and reduces, rather than increases, unemployment. Productivity growth also draws more laborers into the workforce.
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 labour-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.
He is a past president of the Society of Economic Dynamics and one of the founding editors of the Review of Economic Dynamics.
