Nobel Economie Prize: Jobs and Inflation

An American economist who developed theories about unemployment that better capture how workers and companies make decisions about jobs has been named winner of the 2006 Nobel Memorial Prize in Economic Sciences.

Sign up for: Globe Headlines e-mail | Breaking News Alerts Edmund S. Phelps, a professor at Columbia University in New York, was cited yesterday for research into the relationship between inflation and unemployment, giving governments better tools to formulate economic policy.

The Royal Swedish Academy of Sciences, which announced Phelps's selection in Stockholm, said in its citation that his work ``has fundamentally altered our views on how the macroeconomy operates."

Americans have swept all the Nobels disclosed so far this year, with Phelps being the sixth named for one of the prestigious awards. The economics prize carries an award of $1.4 million.

The winner of the Nobel for literature will be unveiled Thursday, followed by the peace prize on Friday.

Phelps said he had waited for the award for a long time, but wasn't expecting it this year. ``I thought for a time I would get it in my 60s, then I thought I would get it in my 70s, and, more recently, I've been thinking that I would get it in my 80s," he said.

The Swedish academy cited research by Phelps that challenged the view that there was a predictable tradeoff between inflation and unemployment. That view held that any government wanting to reduce joblessness by stimulating the economy would have to tolerate rising prices.

Phelps argued that this view didn't take workers' or companies' decision-making into account, and his research showed that their expectations about both unemployment and inflation affected their actions.

Edmund S. Phelps
Edmund S. Phelps became the first solo winner of the economics prize since 1999.
Age: 73
Education: Bachelor's degree from Amherst College, 1955; master's degree from Yale University, 1956; and PhD from Yale, 1959.
What he does now: Director of Columbia University's Center on Capitalism and Society, now part of the Earth Institute headed by former Harvard University economics professor Jeffrey Sachs.
His theory: Phelps looked at the relationship between inflation and unemployment and showed there is a "natural" rate of unemployment, below which inflation pressures are likely to intensify.
Why his work matters: His theories led to increased vigilance against inflation at the Federal Reserve and other major central banks.
By Associated Press