Nobel economics prize: Peter Diamond, Dale Mortensen, Christopher Pissarides share award
Monday, October 11, 2010; 7:05 PM
Peter Diamond, a nominee to join the Federal Reserve Board of Governors, hasn't had much luck getting confirmed by the U.S. Senate. The Nobel Prize committee apparently views him more favorably.
Diamond was among three academics awarded the Nobel Prize in economics Monday for pioneering research on unemployment that has helped better explain the factors that can keep people out of work. Dale Mortensen of Northwestern University and Christopher Pissarides of the London School of Economics will share the prize with Diamond, of the Massachusetts Institute of Technology.
Diamond was nominated by President Obama earlier this year to be one of the central bank's top officials, but the Senate has not held a vote to confirm him. Sen. Richard C. Shelby (R-Ala.) has argued that Diamond may not be qualified to serve at the Fed given that his background is not in monetary policy.
The White House seized on the Nobel announcement to try to cast attention on gridlock in the confirmation process in the Senate.
"Peter's nomination to the Federal Reserve Board of Governors continues to be held up by a partisan minority in the Senate," White House press secretary Robert Gibbs said. "Obstructing a nominee as well-qualified as Peter in a time of economic crisis is a harmful attempt to score political points that hurts our middle class and our broader economic recovery."
Diamond isn't the only high-profile nominee for an economic policy job whose confirmation has bogged down; the same is true of Jacob Lew, whom Obama has named director of the Office of Management and Budget.
Shelby, in a statement, said that "while the Nobel Prize for Economics is a significant recognition, the Royal Swedish Academy of Sciences does not determine who is qualified to serve on the Board of Governors of the Federal Reserve System."
The academic work of Diamond, Mortensen and Pissarides has particular relevance in the current economic environment with sky-high joblessness in the United States and many countries around the world. The scholars' research has helped understand the inner workings of the labor market, including why, in a deep economic downturn, unemployment can become entrenched and remain high for many years
"The laureates' models help us understand the ways in which unemployment, job vacancies and wages are affected by regulation and economic policy," said the Royal Swedish Academy of Sciences, in announcing the prize, which is formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
A 1994 paper by Mortensen and Pissarides, which builds on work by Diamond, showed how sharp rises in unemployment can cause a negative, self-reinforcing cycle to set in. For example, when the unemployment rate is high, employers may be more reluctant to hire than would be expected because they know they can find quality workers even if they wait. That can in turn cause unemployment to stay higher for longer periods.
And Diamond has conducted important research on the costs involved in people searching for jobs and the impact of those costs on employment. He wrote a key paper with Olivier Blanchard on the "Beveridge curve," which captures relationship between the number of job openings and the unemployment rate.
With the U.S. jobless rate at 9.6 percent and appearing likely to remain high for some time, there is a debate underway among economists over how much of the current employment problem is "cyclical," merely reflecting the short-run impact of the recession, and how much is "structural," meaning that it is driven by fundamental changes in how the economy works.
The major lesson of the work by the three new Nobel laureates is that the lines between these two types of employment are fuzzier than may seem obvious, and that cyclical unemployment can become structural unemployment.
"It's very important that people get back to work," Diamond said at a news conference Monday following the prize announcement, "because if they're out of work too long, it breaks the connection to the labor market, and the economy functions more poorly thereafter."