3 share Nobel Prize for research on jobs

NEW YORK (CNNMoney.com) -- Three economists will share the 2010 Nobel Prize for their work on how government policy affects unemployment, the Royal Swedish Academy of Sciences announced on Monday.

The Nobel Prize went to Peter Diamond of the Massachusetts Institute of Technology in Cambridge, Mass.; Dale Mortensen of Northwestern University in Evanston, Ill.; and Christopher Pissarides of the London School of Economics and Political Sciences.

The three received the prize for research on how economic policy affects the job market. Their theories "help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy," said the academy in a statement.

Earlier this year, Diamond, an expert on tax policy and Social Security, was nominated by President Obama to serve on the board of the Federal Reserve. But Sen. Richard Shelby, R-Ala., blocked the nomination, saying that Diamond didn't have the experience.

"I do not believe he's ready to be a member of the Federal Reserve Board," Shelby said in August. "I do not believe that the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job."

Messages to Shelby's office and the White House were not immediately returned.

Pissarides, a British-Cypriot citizen, told the academy that he felt a "mixture of surprise and happiness" upon receiving the honor.

The three economists' research focused on so-called "frictions," or impediments to trade, such as misinformation, cost of transportation or the disparity between companies' and employees' needs.

The Royal Swedish Academy of Sciences said that Diamond, Mortensen and Pissarides focused on how these frictions apply to unemployment, by focusing on the disconnect between employers and the unemployed. Part of the study examines why unemployment remains high when there are workers available to fill the job openings.

"Labor market friction is very important and it may explain why unemployment remains very high in certain places," said John Lonski, chief economist for Moody's Investors Service.

Lonski said forms of disconnect could include workers who are unwilling or unable to move to areas with better job opportunities, or workers who won't accept pay reductions.

"The frictions that they're talking about are the reasons why unemployment can't be driven down to zero," said Daniel Hamermesh, a labor economist at the University of Texas.

Hamermesh said the Nobel Prize-winning research could be used to study why "in this recession the unemployment is extremely long-term compared to all the other recessions."

The recipients will split the prize of 10 million Swedish kronor, equal to about $1.5 million.

The Nobel Prize for economic sciences has been awarded every year since 1969, when it was established by Sveriges Riksbank, Sweden's central bank.

In 2009, the prize for economic sciences was awarded to two American economists: Indiana University Professor Elinor Ostrom, the first woman to receive the prize; and Oliver Williamson, a retired professor from the University of California, Berkeley.