AS HIGH unemployment once again stalks the western world, the Nobel committee has rewarded three economists who revealed how the process of searching for work affects unemployment. As Dale Mortensen and Christopher Pissarides put it in 1998: “Market friction, the costly delay in the process of finding trading partners and determining the terms of trade, is ignored in the standard theory of perfectly competitive markets”.
Beginning in the 1970s, their work looked behind the brute fact of unemployment to consider how would-be employers and employees could really find each other and what stopped that happening. This allowed assessment of the impact of government policy on unemployment. So Pissarides was keen to stress yesterday in relation to Greece, where unemployment is at a 10 year high, that its problem is made worse by regulation, including, ironically, strong job protection laws that discourage firing and hence hiring.
Pissarides also referred to the conclusion of his 1992 paper, Loss of Skill During Unemployment, which shows how an acute unemployment shock can become chronic if the unemployed lose their skills by not continuing to engage with the workplace.
The trade unions now planning to hold the coalition to task might also reflect that in 2003 Pissarides explained the relatively lower unemployment in Britain compared to elsewhere in Europe in part by “the decline of trade union power”.
The three winners who share this year’s economics Nobel
CHRISTOPHER A. PISSARIDES
Pissarides' most influential paper is arguably “Job Creation and Job Destruction in the Theory of Unemployment (with Dale Mortensen)”, published in the Review of Economic Studies in 1994.
Christopher Pissarides is Professor of Economics at the London School of Economics and holder of the Norman Sosnow Chair in Economics. He specialises in the economics of unemployment, labour-market theory, labour-market policy and more recently he has written about growth and structural change. He has written extensively in professional journals and his book Equilibrium Unemployment Theory, now in its second edition, is a standard reference in the economics of unemployment.
In 2005 he was awarded the IZA Prize in Labor Economics (jointly with Dale Mortensen) for his work on unemployment.
Born: 1948, Nicosia, Cyprus
Affiliation at the time of the award: London School of Economics and Political Science, London, United Kingdom
DALE T. MORTENSEN
Dale T. Mortensen is the Ida C. Cook Professor of Economics at Northwestern
University. His research and teaching interests are in labour economics, macroeconomics and economic theory.
Mortensen pioneered the theory of job search and search unemployment and extended it to study labour turnover, research and development, personal relationships, and labour reallocation. His insight, that friction is equivalent to the random arrival of trading partners, has become the leading technique for the analysis of labour markets and the effects of labour market policy. The development of equilibrium dynamic models designed to account for wage dispersion, the time series behavior of job and worker flows, and economic growth through product innovation are the principal topics of his current research.
He is the 2005 co-winner of the IZA Prize in Labor Economics
Born: 1939, Enterprise, OR, USA
Affiliation at the time of the award: Northwestern University, Evanston, IL, USA