Business

Nobel prize for economics awarded to trio of academics

  • 11 October 2010
  • From the section Business
jobless queue
The three won the award for work on how job vacancies are affected by regulation

Americans Peter Diamond and Dale Mortensen, and British-Cypriot Christopher Pissarides, have won the 2010 Nobel economics prize.

They were honoured for work on how unemployment, job vacancies and wages are affected by regulation and policy.

The Royal Swedish Academy of Sciences praised their work on why unemployment stays high in times of many vacancies.

The 10m Swedish kronor ($1.5m) economics prize was set up by the Royal Swedish Academy of Sciences in 1968.

'Surprise and happiness'

Mr 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 him to become a member of the US Federal Reserve, although the appointment has been held up by Republicans.

Mr Mortensen, 71, is an economics professor at Northwestern University in Evanston, Illinois, and Mr Pissarides, 62, is a professor at the London School of Economics.

Professor Pissarides said he received the news with "a mixture of surprise and happiness, general satisfaction".

"This is prize is so great you don't believe that you will get it even after you've got it," he said.

Citation

Among other subjects, their research looked into why unemployment remains high even at times when there are large number of job vacancies.

Classical economic theory says that buyers and sellers - or in this case, employers and potential employers - always find each other. But this does not happen in the real world.

The laureates' general conclusion is that searching for jobs and stabilising the labour market can take up so much time and resources that economies can have both high jobless numbers and high vacancy rates simultaneously.

The citation from the Swedish academy said that the laureates' work on so-called friction theory "help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy.

"This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times."

Paul Krugman, who won the Nobel economics prize in 2008, described the award as "richly deserved" because friction theory is "very important stuff".

Last year's economics prize was won by Americans Oliver Williamson and Elinor Ostrom - the first woman to receive the award - for research on economic governance.

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