April 2011 Issue
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Economic Indicator

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The optimism is almost tangible. JFK is the United States' charismatic president, and Alan Shepard has just become the first American in space. It's a glorious day in Salem, Oregon-the kind when the spring sunshine lights up the capitol building across the street from campus.

As always, crowds are milling around in the quad, the heart of Willamette University. A particular group of young men flock around economics professor Richard Gillis. He's arguably the most popular teacher at school, with his quick wit and outgoing charm-a bit of a pied piper. Usually the professor can be found having a cigarette on the sidewalk leading to the capitol. It's just off campus and a popular spot, because smoking is prohibited on school grounds. But today is different. Gillis is in the center of campus-it's graduation day.

The group around him includes some of his best and brightest. One of the students blurts out, "Professor Gillis, what do you think will happen to us after we graduate from WilAMMit?" pronounced the appropriate Oregon way. Gillis turns to the budding attorney to say, "Well, I think you'll be a successful lawyer." Business major Stew Butler is next. Gillis can't resist a tease. "Well, Stew, you'll be governor, of course!" The others laugh at the lofty expectation. Then Gillis peers at Butler's roommate, Dale Mortensen. The professor smiles thoughtfully. ...

Mortensen, Gillis' top student and senior class president, was a kid from a town with a four-room grade school, a timber community up the Hood River Valley. He followed his childhood buddy, Russ Beaton, to Willamette, on identical merit-based full scholarships. They had both been crack math students in high school: Beaton, one year ahead, had gone on to study economics with Gillis at Willamette.

When Mortensen enrolled, Beaton spoke so enthusiastically about his economics courses that he wasn't a bit surprised when his friend also became intrigued with the subject. And he knew that whatever sparked his friend's interest would be something he would master. Beaton would never forget the football awards banquet in their packed high school cafeteria. His "brilliant" friend stepped up to receive the "Outstanding Lineman" award. Then, for the evening's entertainment, he sang "Ol' Man River" in his "beautiful" bass voice.

At Willamette, Mortensen made plenty of friends in his economics classes. What he didn't know, however, was that he quickly became the college student others measured themselves against. Certain their unassuming buddy had no idea, Butler and the others strove to beat him on any test they could, secretly congratulating each other if they managed to do so, even by a single point.

Beaton graduated and went on to pursue an economics PhD, committed to becoming a college professor like the boys' mentor, Gillis. Mortensen was similarly inspired that graduation day; he and his roommate Butler were heading east-Mortensen to Carnegie Tech, Butler to Penn's Wharton School. They made earnest plans to get together often, once they were settled. The Oregon natives didn't realize the two Pennsylvania cities were 300 hundred miles apart. In fact, Mortensen had never seen Pittsburgh, never been farther east than Chicago. Getting to "Carnegie" meant his first time on a plane, but as a social history buff, he was excited to be learning in "the center of the U.S. industrial revolution." He wasn't disappointed. He found the Graduate School of Industrial Administration, as Tepper was known at the time, to be a place of excitement and change. "It was different than the others," Mortensen recalls. "I didn't know what to expect. It turned out to be full of people with lots of ideas, not always consistent with each other."

He remembers it being a hectic time, not just because of his advanced academic study. Within four years, he met a young woman, Beverly Patton (A'62); married her; and had the first two of his three children-all while pursuing his degree. "We were crazy," he chuckles now. The young family eventually headed to Northwestern University, where Mortensen began his first real job while putting the final touches on his PhD long-distance, earning it in 1967. At Northwestern, he encountered faculty members interested in labor economics. He was fascinated, thinking he could find a better way to explain things. It was a topic that would become his life's work.

Mortensen developed a new way of looking at labor markets. The most traditional models assumed that at a certain wage, labor supply would equal demand, and, that theoretically, there should be no involuntary unemployment. Mortensen realized the models didn't account for "search frictions," or the time and money it takes for both workers and employers to find a "match." The models, moreover, didn't account for the uncertainty and time lapse involved in making such decisions-when and how did someone decide that a worker, a job, was worth taking, not knowing whether to keep looking for something better?

He addressed those questions through mathematical models and succeeded in developing a framework that provided a much better academic understanding of the labor market. Among other concepts, he demonstrated how, in the real world, search frictions mean that unemployment exists while vacant jobs remain unfilled. He demonstrated that during recessionary times, job destruction occurs quickly (layoffs are relatively easy), whereas job creation is slower (re-hiring takes time), meaning employment can lag recovery.

Two other scholars were researching concurrently in the field: Christopher Pissarides and Peter Diamond. They were not explicitly working together, but other experts combined their crucial contributions into what is known today as the Diamond-Mortensen-Pissarides model. It has become the dominant method with which economists analyze labor markets. "That's the way collaboration is in academics," Mortensen jokes. "You steal from each other."

Although Mortensen was primarily interested in labor markets, his work proved applicable to any number of other fields, including housing, monetary theory, and even the marriage market. "I've been married to the same woman for 47 years, held the same job for 45 years, so I've been busy trying to figure out what everyone else is doing," he quips.

Despite his prolific research-more than 50 academic papers and two books-Mortensen, like Gillis before him, found the time to inspire other young minds. Sometimes they were younger than expected.

Victor Li had arrived at Northwestern when he was just 16, a prodigy ready to begin his PhD in economics. When he plunged into his dissertation a few years later, he aligned his topic to work with a renowned professor he admired: Mortensen. Researching both his own subject and working as Mortensen's research assistant, Li knew he would have his hands full. His advisor, however, was "very generous," allowing Li much of the time for his dissertation. Mortensen even encouraged Li to use his spacious, ground-floor office when he wasn't there.

One evening, consumed in his research, Li heard a knock at the office door. It took him by surprise. It was Mortensen, knocking on his own door. His student was touched because it brought back some cherished memories. Li was barely a teenager when he attended college in Delaware, where his father was an economics professor. Too young to live in dorms, he traveled to college each day with his dad, often studying in his father's office, who was also considerate before entering.

On that particular evening, Li was working on research involving the application of search theory to monetary issues. He had been testing and re-testing his model, continually getting "funny results." With one set of numbers, the model worked one way; with a different set, it worked another. Frustrated, he was reluctantly preparing to scrap it all. When Mortensen walked into the office, Li asked his advisor to take a look at the research papers spread out on an office table. Mortensen, in his calm and easy-going way, didn't take long to spot the problem. Actually, there was no problem. The numbers weren't conflicting-they were supposed to work out that way. Search theory models often result in more than one point of equilibrium, or balance. Li was thrilled and relieved. He would go on to earn his PhD, though Mortensen says not until "we kept him here a year so he'd be 21 on the job market!" Li, who is now an economics professor at Villanova and a former senior economist at the Federal Reserve Bank of Atlanta, says Mortensen has been invaluable with career advice and numerous time-consuming recommendations.

Taking "very good care" of his graduate students is a sentiment echoed by another former protégé, Rasmus Lentz, now an economics professor at the University of Wisconsin and Mortensen's co-author on a number of papers. Lentz recalls how he felt so welcomed into his advisor's life, the gatherings given by Mortensen and Beverly at their home, and the warm graduation party they threw for Lentz and another student, as well as their families.

As the years have passed from his days at Willamette and then Carnegie Mellon, Mortensen's work and influence in economics have grown exponentially. Last fall, during lunch with colleagues at Aarhus University in Denmark, where he holds an appointment, he received a phone call. Despite his professional stature, he says it took him by surprise. He had been awarded the Nobel Prize in economic sciences, along with Pissarides and Diamond. It's an especially relevant award today, given the state of the economy and unemployment. Mortensen is now the eighth Tepper individual to achieve the highest honor in economics and the 18th Nobel laureate from Carnegie Mellon.

His friends and colleagues say he remains a kind and "humble" guy, with the same easy manner, the same ready, rumbling laugh. As Lentz puts it, "This is one of those prizes where, in addition to rewarding fantastic work, there are so many people in the profession saying this really couldn't happen to a nicer person. You feel good not just because it was great work, but on a personal level, you are really happy that he got it."

Although the Nobel committee states that Mortensen's work has helped us to "understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy," Mortensen prefers to stick with theoretical research. When asked by a Nobel interviewer how he explains his work to non-economists, he teases, "Usually the people's eyes glass over quickly, and I don't have to go too far."

He says he does involve himself with policy-making "through educating people who are going to deal with those things. ... Teaching is the way you disseminate your ideas most effectively. Students go out into government and into industry and hopefully take your message with them," he explains. When prodded, though, he doesn't shy away from sharing his thoughts on the recent economic downturn.

One of the major problems that employers are having now is simply financing their payrolls ... not because the Fed interest rates are high. They're low. It's because banks are scared to death to lend money to small businesses. ... Fiscal tightening will not help. This is something we need to do, but not before unemployment is returned back to normal. In fact, the first order of business as far as the financial crisis is concerned is to get employment up because doing so will have a tremendous effect on revenue, and that's going to be fiscally balancing. Extend unemployment benefits? ... That will help ... then, we're probably going to have to do more. ... We have all those workers who aren't doing anything. It's a good time to invest in the future. ... We certainly have things to invest in: education, infrastructure, environment. Making use of those resources would be good, from the point of view of the economy as well as the fiscal state of the world, even though it may require more borrowing in the short term.

Back in Willamette on graduation day in 1961, that group of eager young men surrounding their beloved professor, Richard Gillis, impatiently awaits his next prediction. What will happen to their friend Dale Mortensen after he graduates from Willamette? "Dale," says the professor, "You're going to be an economics professor, a famous one."

Melissa Silmore (TPR'85 ) is a Pittsburgh-based freelance writer and a regular contributor to this magazine.

Video:
Dale T. Mortensen Receives His Prize in Economics
Telephone Interview

Related Links:
Dale Mortensen Named Co-Recipient of 2010 Nobel Prize in Economics Sciences
Tepper Alum Wins Nobel Prize
Nobel Prize Winners

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