Nobel Prize Winning Economists Connect Flaws in the Market and Unemployment
October 11, 2010
(ChattahBox News) – Peter Diamond of MIT, Dale Mortensen of Northwestern University, and Christopher Pissarides of the London School of Economics have won the Nobel Prize in economics with their insight as to why the market doesn’t always run so smoothly. The original Market Watch article draws a firm connection to the nature of the market and how it is tied to the swelling rate of unemployment. Due to its relevance in our current state of affairs, it’s no surprise that their insight has warranted such praise.Nearly every individual in the country is struggling with unemployment or is close to someone who is. Market theorists believe that the problem with unemployment is that it can be circumvented altogether. The idea behind this is that if workers lower their standards for employment, a job is waiting to be found. Inversely, they also believe that employers should be able to recruit candidates for every position if they lower their standards. Diamond, Mortensen, and Pissarides disagree.
The current theory on unemployment suggests that the situation is a choice rather than a flaw in the system. The economists argue that it is costly to find a job that utilizes an individual’s skills and pays them for what they are worth. Due to the high unemployment rate, most positions are met with a myriad of applicants, all of which look similar at first glance. Employers also face the dilemma of spending time and resources in finding a candidate who will be able to perform the job at the lowest cost. Basically, it is costly for both parties involved.
The result of the need to search for a job worth having and an employee worth having is that the market can become inefficient. Jumping at the first job offer or hiring the first applicant can cause the market’s efficiency to be sapped. This is part of the reason that you will often find graduates with master’s degrees working at the Gap. The fact that many individuals with degrees don’t work within their field means that a great deal of education and valuable skills are simply not being directed properly.
Government policies put in place for workers and employers serve as a double edged sword within the dilemma. Unemployment benefits allow skilled workers to seek out jobs where their skills will be properly implemented, but can also prolong the search. The three economists have supplied their insight as to how the market actually works in hopes that better understanding the system can improve them.
The unemployed might be saying to themselves “give me a job, any job”, but this might be the best way to keep the high rate of unemployment a common occurrence.