The three students of unemployment and labor market inefficiencies Pedro A. Diamond, Dale T. Mortensen and Christopher A. Pissarides receive this December, the Nobel Prize for Economics 2010 “for his analysis of markets with frictions in the process of search” that explores the balance between supply and demand for labor. This theory also applies to issues related to monetary theory, public economics, financial, regional and family.
The model Diamond-Mortensen-Pissarides (or DMP) is currently the most used tool for analyzing the unemployment and may explain why they can live high unemployment with many unfilled vacancies and unemployment can affect how certain economic policies. This model takes into account elements or ‘market frictions’ as real wages, interest rates, firing costs, the average length of unemployment or the number of jobs available.
“The winning model helps us understand the ways in which affected unemployment, job and wage regulation and economic policy. This can refer to the levels of benefits or unemployment insurance rules on hiring and firing, “said the statement from the Swedish Academy which awards the Nobel.
MIT professor analyzed the market bases of Mortensen and Pissarides search and theory developed and applied to labor markets. Diamond explained how companies and buyers and sellers unemployed or experiencing problems contact. The ‘search engines’ need time and resources making it possible for matching supply and demand, but also that they do so inefficient or simply fail to mate.
Diamond was proposed by Barack Obama, U.S. President-to be a member of the Federal Reserve Board, however, his appointment has been delayed after some Republican senators questioned at the time your professional value.
Generous benefits increase unemployment
One conclusion of this theory is that more generous unemployment benefits lead to higher unemployment and unemployment periods longer search.
In regard to regulating the hiring and firing, the new Nobel economics believe that bureaucratic hurdles are more harmful for employment severance costs and also maintain the minimum wage may increase while the level employment and social welfare.
The Prize is 10 million Swedish kronor (1.08 million euros), to be divided equally among the three winners.
This award was created in 1968 and is not part of the original Nobel prizes. Officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Swedish chemist, inventor of dynamite.