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Brooks Wilson's Economics Blog: 2010 Nobel Laureates in Economics

Monday, October 11, 2010

2010 Nobel Laureates in Economics

Three economists, Peter Diamond, Dale Mortensen, and Christopher Pissarides, won the Nobel Prize in Economics for research on how economic frictions created by job search, regulation and other variables affect unemployment.  My students should note that job search is included in chapter 15, “Unemployment,” in Mankiw’s text.

In chapter 1, “Ten Principles of Economics,” Mankiw enumerates ten principles of economics, the first of which is that people face tradeoffs.  A very good article by Karl Ritter and Louise Nordstrom, AP writers published in the Chicago Tribune, “2 Americans, British-Cypriot win Nobel economics prize for job market analysis” describe a positive conclusion as stating
"One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times," the academy said.
A second conclusion is that the longer search time leads to a better matching of jobs to laborers.  The trade-off is the cost of the benefits for for more efficient job allocations. 
Diamond wrote a paper in the early 1980s that found that unemployment compensation can lead to better job matches. Workers "become more selective in the jobs they accept" because of the employment aid. And, that makes for better matches and increases efficiency, he found.
A second conclusion is that longer periods of unemployment lead to a disconnection with labor markets.  The trade-off is the loss of contact with the labor market that is part of the cost of finding a more efficient job match.
"One of the key things we found is that it is important to make sure that people do not stay unemployed too long so they don't lose their feel for the labor force," Pissarides told reporters in London. "The ways of dealing with this need not be expensive training — it could be as simple as providing work experience."


  1. Sarah Matthijetz17/10/10 4:34 PM

    I believe that all of the conclusions are on the right path. Unemployment is important to have in a healthy economy, but there are those who abuse it. Unemployement should be a temporary set up, in which you are searching out a job that will be proactive to your future. The compensations recieved while on unemployments should in no way be thought of as a paid vacation.

  2. I deal a lot with unemployment at my job quite a bit because my company regularly lays off people temporarily during slow times. I can't tell you how many of the people that I work with opt to take the entire summer off simply because they can receive unemployment benefits during that time, and since they have a definite return to work date that is less than 90 days from their layoff date, they aren't required to actually look for other work during that time.

  3. I believe having unemployment benefits available is substantial in a thriving economy, yet when it come to a point of abuse then things need to change. Tracking of the unemployed actively searching for jobs should be available so that the government knows that their benefits aren't being wasted.