We're off today for Columbus Day, but we do want to bring you some news this morning.
Two Americans and and a British-Cypriot economist have been awarded the 2010 Nobel prize for economics. Peter Diamond of MIT, was cited for his work on the foundations of "search markets," and Dale Mortensen of Northwestern University, and Christopher Pissarides of the London School of Economics, were cited for applying this theory to the labor market. The work of the three men focuses on frictions in the market between buyers and sellers and employers and employees and tries to answer questions like: "Why are so many people unemployed at the same time that there are a large number of job openings?"
The Nobel Academy noted that a model based on their work, the Diamond-Mortensen-Pissarides (DMP) model, "is the most frequently used tool for analyzing unemployment, wage formation and job vacancies."
The DMP model describes the search activity of the unemployed, the recruiting behavior of firms and wage formation. When a job seeker and an employer find one another, the wage is determined on the basis of the situation on the labor market (the number of unemployed workers and the number of vacancies). The model can thus be used to estimate the effects of different labor-market factors on unemployment, the average duration of spells of unemployment, the number of vacancies and the real wage.
Peter Diamond has been nominated by President Obama to join the board of the Federal Reserve. He is awaiting confirmation.
Listen to our interview with one of last year's winners, Elinor Ostrom.