Nobel Prize to Massachusetts Unemployment Expert
Massachusetts Institute of Technology economics professor Peter Diamond was awarded the Nobel Prize in Economics. The Swedish Academy awarded Professor Diamond and two colleagues the award for an unemployment modeling that can be used in other economic arenas. According to the Nobel Prize Committee “the laureates models help us understand how unemployment, vacancies and wages are affected by [state] regulation and economic policies.” Also called “markets with search frictions,” the research examined the marketplace, including unemployment, where buyers and sellers don’t easily find each other. Massachusetts consumers who are concerned about jobs and employment should appreciate the timeliness of the award, considering the 8.8% Massachusetts unemployment rate.
Dr. Diamond’s “A Model of Price Adjustment” published in 1971 showed that, contrary to Econ 101 theory, competition can lead to monopoly pricing. This occurs when identical sellers that fix their prices lead to consumers failing to search for a better price. Professor Diamond’s work proved that increasing unemployment insurance enables workers to pass up more marginal jobs. “In contrast to the classical models established in these markets, buyers and sellers do not always contact each other instantly and the demands and objectives of each are not always satisfied, as happens with companies seeking employees and those seeking a job. Since the search takes time and resources, it generates friction in the market, so there may be unemployed, although there are vacant jobs. ”
What is ironic is that Dr. Diamond was nominated by President Obama for the Federal Reserve Board, however, that nomination has been blocked by partisan politics since April. Notwithstanding the Nobel, the Washington politicians continue to find Dr. Diamond unqualified.