Monday, October 11, 2010
The Nobel Prize in Economics was awarded today to three researchers for their work on unemployment. Peter Diamond, Dale Mortensen, and Christpher Pissarides received the award for their research into diffuclties that can arise when buyers and sellers try to find each other--particularly in the labor market. As described by the New York Times:
For decades, the researchers have studied what happens when a market is not made up of identical, cookie-cutter units — as is the case with the job market, where workers have different skills and weaknesses, and where all companies have different types of jobs they need to fill. In many cases, there are significant obstacles to finding the ideal match between a buyer and a seller, like matching a job-provider to a job-seeker. . . .
Some of the applications of the research include understanding why unemployment rises during recessions, why different people get different wages, and how so many people can be unemployed at the same time there are a large number of job openings available. Their work has suggested, for example, that unemployment benefits can have the unintended consequence of prolonging joblessness by making it less costly to stay unemployed. . . .
In a telephone interview with reporters at the Nobel news conference in Sweden, Professor Pissarides said that he thought the work being honored had one lesson in particular for today’s policy makers: “What we should really be doing is make sure the unemployed do not stay unemployed for too long, to try to give them direct work experience,” so that they “don’t lose their attachment to the labor force.” So-called “search theory” has also been applied to many other areas, like housing, public economics, family economics, finance and monetary economics.