The Latest Economics Nobel
By Arnold Kling
1. This appears to be for theories of labor matching. Diamond has much more on his resume, but the others do not.
2. One could easily have added several other economists to the list of contributors to this notion. Robert Hall and Robert Shimer, for two.
3. I wrote,
Many economists believe that it is fruitful to study the labor market as a “matching market.” There is a voluminous literature that adopts this perspective. It is tempting to describe good economic times as periods when it is easy to match worker with vacancies and to describe bad economic times as periods in which matches are difficult to make. However, such stories do not fit with the sense that we have that recessions involve a general excess supply of labor, not just a matching problem.
That was this past July. Now, I will have to come up with a more careful consideration of the matching paradigm.
On the one hand, I like the approach. You may recall the “game” I describe (in my expert failure piece, for example), in which there are two decks of cards, one with a list of workers and one with a list of jobs.
On the other hand, it fails to capture some important dynamics about the problem of creating patterns of sustainable specialization and trade. In the real world, the jobs are not just sitting out there, looking for workers. Some job openings are like that. However, a lot of jobs first appear when (a) entrepreneurs start new firms or (b) existing businesses launch new projects or seek new capabilities. Not surprisingly, most of the increases in employment come from fast-growing firms, not from stable firms. My guess is that somewhere in the vast literature on job search there are papers that include growth and decline of firms, but my impression is that the basic model is not about that. I could be wrong.
If you read this paper by Diamond (good luck), you can get a sense that he is talking about PSST. But I think of entrepreneurs as having to create production opportunities and that those opportunities last until something changes to make them no longer profitable. For Diamond, the production opportunities “arrive” randomly, and they seem to disappear as soon as they are realized. Maybe the math would be the same for the economy as I think about it, but I can’t tell.