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I refer to it here, not because I accomplished that goal. My second paper, "Job Search, the Duration of Unemployment and the Phillips Curve", published in the American Economic Review in 1970 as well, was an attempt to use new ideas about decentralized exchange in a labor market with search friction to provide an interpretation of the empirical Phillips curve. Although the three of us have not always agreed on the details and have taken different directions in the pursuit of the goal, we have shared a common view that macroeconomics needs a foundation based on equilibrium market analysis. In addition to myself and Phelps, the authors included a third Economics Prize winner, Robert Lucas. In other words, the authors argued that macroeconomics should be founded on microeconomic principles. The basic message of the collection was that one could and should consider the dual macroeconomic problems of employment and inflation as the outcomes of individual agents' interaction, in which each behaves in his or her own interests in a market environment characterized by uncertainties and incomplete information. I was fortunate to have this, my first major paper, "A Theory of Wage and Employment Dynamics" published in the collection of papers presented at his conference that became universally known as the "Phelps volume." The Phelps volume, Microeconomic Foundations of Employment and Inflation Theory, was published in 1970. After I had written a very long working paper designed to formulate and work out some of my idea, Ned Phelps asked me to present it at a conference he was organizing on the topic. Using the labor market as my focus, I came up with the idea of modeling the consequence of search and matching friction as the outcome of a sequence of random meetings between potentially interested parties.
#Micro focus lse how to
I began to think about how to capture the essential features of a decentralized market with search friction in a formal but simple economic model. At Northwestern we created an informal reading group in the spring of 1968 focused on the macroeconomic implications of these new ideas circulating in the profession about the labor market. This was the environment in which I began my research and teaching career. Speaking of his experience with the Phelps volume and the debate surrounding the Philips curve at the time, Mortensen writes in his Nobel lecture: Continuing with this theme, Mortensen published his next article in 1970 in the 'American Economic Review', which was titled 'Job Search, the Duration of Unemployment, and the Philips curve'. The article titled 'A Theory of Wage and Employment Dynamics' dealt with the issue of search frictions in the job market. Mortensen contributed his first paper to the Phelps volume, which was a collection of articles in macroeconomics dealing with new ideas on unemployment. This approach was called the 'dynamic flows approach', whereby the change in unemployment was a function of the state of business activity. Mortensen was inspired by the work of economists such as Stigler and Phelps in the 1960s, who were looking at unemployment from an individual's point of view. Mortensen's book 'Wage Dispersion: Why Are Similar Workers Paid Differently' (2003), analyses why wages and salaries differ and found that one main reason for this is the time spent on job search as well as different wage policies. They found that there are rigidities in the labour market such as unemployment benefits that may lead to persisting unemployment and encourage job seekers to look for the best package for a longer time. Mortensen and Pissarides applied Diamond's search theory to the labour market. In this article, we will review the main works of the three laureates and see how they continue to guide us in the formulation of public policy. Their models help explain how unemployment, job vacancies and wages are affected by economic regulations and could help guide government policy to find the best solution.
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The three Nobel laureates formulated a theoretical framework for search markets, such as the job market, in which buyers and sellers do not always make contact with one another immediately. Pissarides did his bachelor's and master's degrees in economics from the University of Essex in 19, and a PhD in economics from the London School of Economics in 1973, under the supervision of the mathematical economist Michio Morishima for a thesis entitled 'Individual behaviour in markets with imperfect information.' After his doctorate, he worked briefly at the Central Bank of Cyprus and then became a lecturer in economics at the University of Southampton.