2 Americans Among Trio Awarded Economics Nobel

The Nobel Prize in Economics has been awarded to two Americans and a British-Cypriot economist. They won for their work developing a theory on why many people can remain unemployed despite a large number of job vacancies. One of the U.S. winners is Peter Diamond, who was nominated for a seat on the Federal Reserve Board. The Senate failed to approve his nomination before lawmakers left to campaign for the midterm elections.

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The winners of today's Nobel Prize in economics are experts in a problem that's especially relevant right now: Why do some jobs go unfilled even in times of high unemployment?

There are three winners: the Americans Peter Diamond of MIT and Dale Mortensen of Northwestern, and a British Cypriot, Christopher Pissarides of the London School of Economics. NPR's Jim Zarroli reports.

JIM ZARROLI: MIT's Peter Diamond has had what you might call an up-and-down year. He was nominated by President Obama to fill one of the vacancies on the Federal Reserve board but his nomination was put on hold when Republicans complained about his limited macroeconomics experience.

This morning, as he was returning from the airport after a long trip to New Zealand, Diamond heard he had won the Nobel.

Mr. PETER DIAMOND (Winner, Nobel Prize for Economics): Fortunately, I was sitting down, and I wasn't behind the steering wheel.

(Soundbite of laughter)

Mr. DIAMOND: And it kind of takes your breath away.

ZARROLI: Diamond and the other two winners were cited for their research into the way public policy affects unemployment and the job market. Classical economics says that buyers and sellers should always find each other if the price is right. But Dean Baker of the center for economic and Policy Research says the labor market doesn't always work that smoothly.

Mr. DEAN BAKER (Center for Economic and Policy Research): We always have some amount of unemployment, sometimes higher, sometimes lower. And the problem of this from the standpoint of an economist is, well, why doesn't he wage just fall, and then we get labor markets clear and, you know, essentially zero unemployment. And that doesn't happen. And the reason why that doesn't happen, at least in part, clearly, is this issue about search friction.

ZARROLI: That term, search friction, refers to some of the ways the labor market can break down. For instance, a job applicant might be perfect for a position but may not know the job exists. Or the applicant might lack the right kind of training.

Ron Braeutigam is a professor of economics at Northwestern and a colleague of Mortensen's. He says the three winners devised a model that helps explain some of the factors that throw a kink into the labor market.

Professor RON BRAEUTIGAM (Professor of Economics, Northwestern University): At the micro level, it helps you understand why individual workers have trouble finding jobs and also why employers might have trouble finding workers in some situations.

ZARROLI: And Braeutigam says this kind of research can help guide policymakers who are trying to design job-training or unemployment compensation programs.

Prof. BRAUUTIGAM: Another way of describing it is matching: How do you actually achieve matching of employers and employees?

ZARROLI: Understanding some of the ways the labor market may break down is an especially relevant challenge right now, when the U.S. unemployment rate hovers at about 9.6 percent.

At a press conference today, Diamond talked about the consequences of prolonged joblessness.

Mr. DIAMOND: When people are out of work too long, it breaks the connection to the labor market. It makes the economy function poorly thereafter. So the more rapidly we can get the world economy growing faster, the better.

ZARROLI: At the same time, Diamond struck a note of hope. He praised efforts by the Federal Reserve and the Obama administration to pull the economy out of recession. He rejected the notion that the U.S. economy has undergone some structural change and that the job market will remain weak indefinitely. But he said the world economy has been dealt a severe blow, and it will take some time to repair the damage.

Jim Zarroli, NPR News, New York.

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