Edward “Eddie” P. Lazear passed away last week, at the age of 72. Eddie made path breaking contributions to research in economics, but not only his dedication to policy making shaped a presidency, his passion for economics changed the lives of countless students.
His field was labour economics. Quite literally “his” as he founded both the Society for Labor Economics (SOLE) and the Journal of Labor Economics. He won every prize and honor that our discipline awards to labor economists, as well as having the rare honour of having a prize named after him: SOLE will award the first E.P. Lazear prize in 2022.
Eddie’s research was distinctive in style and topics. It is natural for many of us to find papers complex at first read and increasingly simple as we become familiar with them. This process is reversed when one reads Eddie’s papers. At first, they come across as simple, and we only begin to see the complex architecture that underpins them after reading them several times. The papers appear simple because the ideas they present have the rare quality of seeming obvious after you read them, even though you could not imagine or formalise them before.
This ability to distil economic problems to their essence also came across in his seminars: one of us vividly recalls sitting in a 60-minute seminar by Eddie, 45 minutes of which were devoted to discussing the implications of one first order condition. His enthusiasm for the subject made it all seem so easy, yet the insights were deep and intuitive, and underpinned large bodies of subsequent empirical work.
His paper on the methodology of economics [1] should be required reading for any PhD student in economics, and other quantitative social sciences. As he himself exemplified throughout his career, the tools of economic analysis can be put to use to understand so many aspects of individual behaviour, and it was through this use that economists could contribute to the greatest policy challenges societies have faced.
Eddie was a pioneer in labour economics and the founder of personnel economics. He studied how workers choose how much effort to exert and which jobs to do, and how it shapes or should shape a firm’s human resources policy. In his classic paper on incentive pay, [2] he opened up the possibility of using human resources data from individual firms to uncover the effect of personal policies on firm productivity. The paper shows that performance play effectively raises worker effort as expected but perhaps more surprisingly half of the effect comes from a change in composition of workers. More productive workers are attracted by the performance pay contract and join the firm while slower workers lose out and quit. Eddie’s attention to selection and sorting both across the hierarchy of the same firm and across firms explains many puzzles. In one of his last papers [3] he showed how overconfidence in one’s ability at work needs not be a behavioural bias but rather emerges in equilibrium from the selection process as workers accept jobs for which they’ve received a positive signal of their ability for the job itself. In a classic paper, Eddie explains why the “Peter principle” [4], which states that people are promoted to their level of incompetence, can be simply explained by mean reversion rather than being a mark of inefficiency.
Eddie was a firm believer in the market economy and the power of the price mechanism, but his openness to ideas and debate brought him the respect of all his fellow economists whose political positions were way to the left of his.
As Richard Blundell puts it, “He was always a republican (with a capital R in the American sense) but not a narrow and blinkered conservative. He loved debate, in the best Chicago tradition. He wanted to engage [..] he was always approachable and wanting to hear new ideas.”
Eddie’s curiosity was limitless. Richard told us how even after heading up the Council of Economic Advisors (CEA) for George W. Bush he still hankered after the lively interchange of the research seminar. Richard found an email from him as he was finishing his time as Head of the CEA, he wrote ‘Hi Richard, I am coming to London next week and thought I would volunteer to give a seminar on an insider’s view of the financial crisis with special emphasis on labour markets. I am sure that it is too late for you to juggle things at this point but thought I would write to offer.’ Of course, we did find a slot for him. We certainly didn’t reach agreement on every strand of what he had to say but it was a terrific seminar and we learned a lot. Eddie is already greatly missed.’
What also helped was that Eddie was a very kind person. We experienced this kindness as young researchers, and his words of encouragement were a major reason we set up field experiments with firms. Many of his colleagues can attest to his generosity, hospitality and love of life. John van Reenen told us of when Eddie invited him for dinner and to his surprise took him to the garage where, in John’s own words, “there he showed me with pride, a gleaming Harley Davidson which he told me he liked to relax by getting on and zooming about all over the USA. Eddie “Born to Be Wild” Lazear.”
He will be sorely missed.
He is survived by his wife, Victoria and daughter, Julie.
Professor Imran Rasul (OBE) l UCL and Professor Oriana Bandiera at LSE
[1] Edward.P.Lazear (2000) “Economic Imperialism,” Quarterly Journal of Economics 115: 99-146.
[2] Edward.P.Lazear (2000) “Performance Pay and Productivity,” American Economic Review 90: 1346-1361.
[3] Edward.P.Lazear (2016) Overconfidence and Occupational Choice, NBER Working Papers 21921.
[4] Edward.P.Lazear (2004) “The Peter Principle: A Theory of Decline,” Journal of Political Economy 112: 141-163.
