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Mortensen Awarded Labor Economics Prize

Award recognizes pioneering work that revolutionized theoretical, empirical labor market research

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October 4, 2005

EVANSTON, Ill. --- The IZA Prize in Labor Economics 2005 has been awarded to Dale T. Mortensen , Ida C. Cook Professor of Economics and director of the Mathematical Methods in the Social Sciences Program at Northwestern University, by the Institute for the Study of Labor (IZA), Bonn Germany.

He shares the award with Christopher A. Pissarides, professor of economics and director of the Research Program on Technology and Growth at the Centre for Economic Performance at the London School of Economics.

The award, to be presented Oct. 24 in Berlin, recognizes their pioneering work that has revolutionized theoretical and empirical labor market research.

The literature stimulated by their contributions to search and matching theory is evidence of the power of their approach to the analysis of interactions in labor markets, marriage markets, housing markets, or generally in all markets with frictions, according to the IZA. Their contributions and development of a dynamic equilibrium model of labor markets account for much of the success of job search theory and the flows approach in becoming a leading tool for microeconomic and macroeconomic analysis of labor markets.

Their models, now widely used in labor economics and macroeconomics, have enriched research on unemployment as an equilibrium phenomenon, on labor market dynamics and cyclical adjustment.

Mortensen ‘s classic article “Job Search, the Duration of Unemployment, and the Phillips Curve” that labor market frictions can be represented by stochastically arriving matching opportunities has provided thrust to the idea that searching for wage offers and jobs is costly when workers and firms lack full information about labor market prices. This pioneering work, in which unemployment is interpreted as a voluntary spell of searching for the most suited job at the best rate of pay, constituted a paradigm shift in thinking about unemployment. His insight that search frictions can be modeled as random arrival of trading partners has also revolutionized research on labor turnover and reallocation, as well as research on personal relationships.

Mortensen’s article “Search, Layoffs and Labor Market Equilibrium,” written jointly with Kenneth Burdett, explains search and layoff unemployment as equilibrium phenomena and shows how the intensity with which workers search and the decision when to accept a job offer determine the distribution of unemployment durations. His article “Property Rights and Efficiency in Mating, Racing and Related Games” shows that an efficient equilibrium exists in bilateral search models and that this equilibrium is attained when the entire match surplus is allocated to the contacting agent. In his article “Wage Differentials, Employer Size and Unemployment” with Ken Burdett, he demonstrates how a search model with wage posting can generate wage dispersion.