Trio of labour market specialists wins 2010 economics award

Peter Diamond and Dale Mortensen of the US and British-Cypriot Christopher Pissarides won the 2010 Nobel Economics Prize yesterday for work on why supply and demand do not always meet in the labour market and elsewhere.

The prize highlights one aspect of a policymaking problem which has bedevilled governments of advanced countries since the oil shocks of the 1970s: High unemployment which has risen even higher because of the global economic crisis

The jury lauded the trio “for their analysis of markets with search frictions”, which helps explain how unemployment, job vacancies, and wages are affected by regulation and economic policy.

According to traditional theory, labour markets should work on their own, with job seekers finding available jobs, thus creating balance.

The three Nobel laureates how­ever help show with their model – the Diamond-Mortensen-Pissarides, or DMP model – that markets do not always work in this way.

Owing to small glitches, buyers may find it difficult to find sellers and job seekers may not find the employers looking to fill a position.

For instance, a small cost faced by employers looking for labour may mean they decide not to take on workers even though they need them.

The trio’s model helps explain why unemployment persists and proves stubbornly resistant even when economic circumstances improve.

It also helps identify areas for government policy action, pinpointing for instance what governments can do to improve employment and prevent long-term unemployment through training.

The jury noted the trio’s work in search theory can also be applied to a number of other areas besides the labour markets, including the housing market and public economics.

Mr Diamond, 70, is associated to the Massachusetts institute of Technology, Mortensen, 71, is associated to Northwestern University and Pissarides, 62, is at the London School of Economics.

The Economics Prize is the only one of the six Nobel prizes not created in Swedish industrialist Alfred Nobel’s 1896 will. It was introduced in 1968 to celebrate the tricentary of the Swedish central bank and was first awarded in 1969.

Last year, Elinor Ostrom – the first woman to ever and win – and Oliver Williamson of the US won the Economics Prize for their work on the organisation of cooperation in economic governance.

The 2010 Nobel season peaked on Friday with the awarding of the prestigious Peace Prize to jailed Chinese dissident Liu Xiaobo, which sparked calls for his release from the West and a furious condemnation by China.

On Thursday, Peru’s Mario Vargas Llosa won the other most closely watched Nobel, the Literature Prize. Like Mr Liu, he had long been tipped as a possible winner.

Factbox

List of all Nobel Economics Prize laureates

2010: Peter Diamond and Dale Mortensen (US) and Christopher Pissarides (Cyprus-Britain)
2009: Elinor Ostrom and Oliver Williamson (US)
2008: Paul Krugman (US)
2007: Leonid Hurwicz, Eric Maskin and Roger Myerson (US)
2006: Edmund S. Phelps (US)
2005: Thomas C. Schelling (US), Robert J. Aumann (US-Israel)
2004: Finn Kydland (Norway), Edward Prescott (US)
2003: Robert F. Engle (US), Clive W.J. Granger (Britain)
2002: Daniel Kahneman (Israel-US) and Vernon L. Smith (US)
2001: George Akerlof (US), A. Michael Spence (US), Joseph Stiglitz (US)
2000: James Heckman (US), Daniel McFadden (US)
1999: Robert Mundell (Canada)
1998: Amartya Sen (India)
1997: Robert Merton (US), Myron Scholes (US)
1996: James Mirrlees (Britain), William Vickrey (US)
1995: Robert Lucas Jr (US)
1994: John Harsanyi (US), John Nash (US), Reinhard Selten (Germany)
1993: Robert Fogel (US), Douglass North (US)
1992: Gary Becker (US)
1991: Ronald Coase (Britain)
1990: Harry Markowitz (US), Merton Miller (US), William Sharpe (US)
1989: Trygve Haavelmo (Norway)
1988: Maurice Allais (France)
1987: Robert Solow (US)
1986: James Buchanan (US)
1985: Franco Modigliani (US)
1984: Richard Stone (Britain)
1983: Gerard Debreu (US)
1982: George Stigler (US)
1981: James Tobin (US)
1980: Lawrence Klein (US)
1979: Theodore Schultz (US), Arthur Lewis (Britain)
1978: Herbert Simon (US)
1977: Bertil Ohlin (Sweden), James Meade (Britain)
1976: Milton Friedman (US)
1975: Leonid Kantorovich (Soviet Union), Tjalling Koopmans (US)
1974: Gunnar Myrdal (Sweden), Friedrich von Hayek (Britain)
1973: Vassily Leontief (US)
1972: John Hicks (Britain), Kenneth Arrow (US)
1971: Simon Kuznets (US)
1970: Paul Samuelson (US)
1969: Ragnar Frisch (Norway), Jan Tinbergen (The Netherlands)