Nobel Prize for Economics actually has relevance to your life!
Yesterday Peter Diamond, Christopher Pissarides and Dale Mortensen (born an Oregonian) jointly received the Nobel Prize for Economics. I admit, often when I read about Nobel winners my eyes glaze over and I pretend to understand what the work is and why it is important. Not this year. The trio’s research on “markets with search frictions” is remarkably relevant not only to this country, but also to my minuscule life.
Their work is important in many ways, but especially to a society suffering high unemployment despite available jobs. This is an example of a “search friction” because it disturbs the traditional free market model in which buyers and sellers always find each other. Harvard Professor Edward Glaeser wrote a very accessible article published in today’s New York Times about the idea. Defenders of the classic market view, he says, explain this disparity as deriving from the laziness of the unemployed. In actuality, though, “the view that the unemployed are just having a swell time hanging out watching cable is wildly at odds with the real world.” The real problem, according to Diamond, Mortensen, and Pissarides is that job seekers and job providers often cannot find each other and when they do, obstacles may prevent their union.
Job providers are increasingly interested in hiring workers with a level of experience or skills that the new workforce and unskilled workers of past economic systems, respectively, just do not possess. In response to growing unemployment among the new workforce, the British government created an initiative called “The New Deal for Young People” for 18-24 year olds who have been unsuccessfully trying to enter the job market for long periods of time. The time when an American could rely on her industry to get a job, it seems, is over: the rate of unemployment for those with a high school degree is 1/3 less the rate for dropouts. The earnings disparity between those with high school degrees and college graduates is growing ever faster.
Finally, for those with the college degree AND experience who find themselves unemployed, there is another possible explanation: pickiness. This, Glaeser says, is a place where the idea of “the unemployed valuing their time too highly” holds true. They do feel their time is wasted working a low-paying job: instead, it is more profitable to use that time to search for a better-paying position.
Very important stuff in the debunking myths department.
Read these awesome articles: http://economix.blogs.nytimes.com/2010/10/11/the-work-behind-the-nobel-prize/
And, especially if you’re from Oregon: http://www.oregonlive.com/business/index.ssf/2010/10/oregon_native_willamette_unive.html
