Tepper alumnus awarded Nobel Prize in economics
An alumnus of Carnegie Mellon’s economics department has been awarded the Alfred Nobel Memorial Prize in the Economic Sciences, commonly referred to as the Nobel Prize in Economics. Dale T. Mortensen, who earned his Ph.D. from the Graduate School of Industrial Administration (now the Tepper School of Business) in 1967, received the award along with Christopher A. Pissarides and Peter A. Diamond of the London School of Economics and the Massachusetts Institute of Technology, respectively.
The Nobel committee awards the prize to economists whose work has made a significant impact on the field across a long period of time. The 2010 winners were credited with researching and creating important labor models that took into account how government regulations and policies made an impact on fields including unemployment and the wages of workers.
Since 1967, Mortensen has served as a professor at Northwestern University in the Kellogg, School of Business.
His colleague at the university, Joel Mokyr, a professor in the arts and sciences, said, “[Mortensen] explains a great deal about why at any given point in time there are a lot of people who are not working, and he gives a very rich and extremely useful theory of unemployment that’s very different from our normal ideas of unemployment.”
The theory that won Mortensen the award challenges the ideas of classical economics regarding how people find jobs and how companies fill vacancies. Classical economists believed that in a free market without government regulation, there would be an efficient outcome in the market for human labor. This means that people would eventually find a way to work in parts of the economy that were relevant to their skills and that employers and employees would be able to settle on wages that fairly represented how much workers contributed to the success of the firm. All laborers in the economy would be contributing, and their skills would be utilized to maximize productivity.
However, Mortensen pointed out that this classic understanding of the labor economy does not include search costs. Search costs are the costs that people have to pay when attempting to find employment. These costs can include the amount of money it takes to move to a new city to work, to buy a new home, to fly to an interview, and much more.
Mortensen’s research states that these costs create a barrier between a person and employment that may be available. In an unregulated market, these barriers create higher unemployment and don’t allow all workers to use his or her skills to achieve the highest level of productivity for the economy.
This analysis supports a possible outside party, such as the government, intervening to coordinate potential employers and employees to utilize one another.
Mortensen is now the fifth degree holder from Carnegie Mellon to win the Nobel Prize in Economics. John Forbes Nash, who received his bachelor’s and master’s degrees from Carnegie Mellon in 1948, won the prize in 1994 for his extensive work in the field of game theory.
Last year, Oliver E. Williamson, a University of California Berkeley professor and a Carnegie Mellon Ph.D. graduate, won the award for his work in demonstrating how firms like companies and corporations have close similarities with governmental bodies.
Former faculty members of Carnegie Mellon have also been awarded the prize for significant contributions to the study and growth of the economics field.
The late Herb Simon, a former professor in the social and decision sciences department, won the prize in 1978 for studying how decision-making processes function in economic processes.
When discussing the Nobel Prize as a whole, which includes categories in Physics, Literature, Medicine, Peace, Economics, and Chemistry, Carnegie Mellon has been home to 18 laureates, which include faculty and alumni. Prizes in five of the categories have been awarded to people associated with Carnegie Mellon, the literature prize being the only one to elude the university. Nine of the 18 laureates were award winners in the field of economics. Clinton J. Davisson became the first university-affiliated winner when he won the award in Physics in 1937 for his discovery of electron diffraction.
Mortensen’s accomplishment has continued the tradition at Carnegie Mellon of pushing the boundaries of knowledge further, bringing pride to many members of the campus community.
Anjum Rangwala, a first-year economics major, said, “After my first lecture in Professor [Steven] Klepper’s class, I knew how good the economics program was here. But after hearing about alumni of the program winning awards like the Nobel Prize, it makes you feel really proud to be a part of the department.”
Jaynth Murthya, a fellow first-year majoring in economics said, “I’m interested in economics because I really think it makes an impact on the world. To hear that a theory that made such a huge impact was partially contrived on this very campus is really cool to hear.”
With two Nobel Prizes won in the last two years, it’s easy to wonder who currently at Carnegie Mellon will be commended in the future.