Edward Lazear

Edward Paul Lazear (, ; August 17, 1948 – November 23, 2020) was an American economist, the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution at Stanford University and the Davies Family Professor of Economics at Stanford Graduate School of Business.

Lazear served as chairman of the Council of Economic Advisers from 2006 to 2009. As chairman, he was the chief economic advisor to President George W. Bush, holding a cabinet-level post as part of the White House team that led the response to the 2008 financial crisis. Lazear has been called the founder of personnel economics, a field of economics that applies economic models to the study of the management of human resources in the firm. His research advanced new models of employee incentives, promotions, compensation and productivity in firms. He is also credited with developing a theory of entrepreneurship and leadership that emphasizes skill acquisition. In addition to personnel economics, Lazear was a labor economist known for his work on the educational production function, and the importance of culture and language in explaining the rise of multiculturalism.

Early life and education Lazear was born on August 17, 1948, in New York City. He grew up in a Jewish family in Brooklyn, New York, before moving to Los Altos, California. His father was a shipyard worker during World War II, and had also been a janitor at a hospital, while his mother was a salesperson at a jewelry shop.

At Stanford University, he was the Jack Steele Parker Professor of Human Resources Management and Economics from 1995 to 2017, and he went on to be the Davies Family Professor of Economics in 2017. and the founder of the Society of Labor Economists.

He served as a research fellow at the Stanford Institute for Economic Policy Research, Center for Corporate Performance at the Copenhagen Business School in Copenhagen, Denmark, and the IZA Institute for the Study of Labor in Bonn, Germany. He was the Astra-Erikkson Lecturer and the 1993 Wicksell Lecturer in Stockholm, Sweden. He had also been a research associate at the National Bureau of Economic Research since 1974. He had also been a visiting professor at the Center for the Study of New Institutional Economics at the University of the Saarland in Germany, the Institut d'Etudes Politiques in Paris, and at the Institutes for Advanced Study in Vienna and Jerusalem. He had delivered lectures across Australia, England, India, Finland, the Netherlands, Norway, and Spain.

Since leaving his post as chairman of the Bush Council of Economic Advisors, Lazear made regular appearances on CNBC and Fox Business News. He was a frequent contributor to the Wall Street Journal op-ed pages.

Labor and personnel economics Lazear was considered one of the pioneers of labor economics, and personnel economics, branches of economics that studies market dynamics between wages and labor. His 1995 book, Personnel Economics, was a seminal work that in addition to introducing the topic, encouraged a wave of subsequent research into labor and management relations. In a case study that examined management and workers at Safelight Glass Company, he noted that when the company moved towards a variable and incentive based pay from the earlier hourly pay, the company saw an increase in worker output and productivity by about 44%. He argued that this increase in productivity and output was not driven by workers just working harder, but, it also included substitution of the labor force, with the company attracting and holding on to more efficient workers. In this paper he argued that companies should adjust the payout structures to pay less during workers' younger days when their productivity is presumably higher and they are worth more to businesses, and pay more to workers in their older days. He goes on to say that while this would mean that employees would hold on to their jobs, mandatory retirement would help solve this problem. In a paper titled "Rank-Order Tournaments as Optimum Labor Contracts" in Journal of Political Economy in 1981, Lazear and Rosen analyzed compensation schemes in which workers' compensations are determined not by their output, but by their rank in their organization. They go on to show that in certain conditions compensation based on rank can result in efficient allocation of resources and also serve as an incentive for workers as they look to advancing through the ranks.

He was a proponent of market dynamics and efficiency and argued in favor of market-driven actions rather than wage guarantees like minimum wages and other governmental interventions. At the same time, he also argued that European state policies toward job stability among workers did not necessarily mean higher unemployment and lower productivity levels in the European labor markets. He further went on to make the case that free markets contribute to increased well-being of the poor. In an article for National Review's "Capital Matters" two months prior to his death, he goes on to quote President Kennedy to state, "a rising tide lifts all boats," implying that general economic growth benefits all population. His study also found interesting findings including the fact that when a country changes its name to drop terms like "democratic", "people's", or "socialist", there is a corresponding 18% increase in incomes of the poor. to be signed into law on February 13, 2008, by President Bush with bi-partisan support. During this period it is mentioned that he was a regular at Camp David, and accompanied President George W. Bush on bike rides in the country retreat, and had been nicknamed as 'stork' by the president.

Other research

Educational production In a paper in 2001, in the Quarterly Journal of Economics, Lazear introduced the idea of an education production function in a classroom. He stated that an optimal classroom size is larger for well behaved students, with the argument that classrooms had a public good element to them and when one student disrupts the class, learning is reduced for all students. He introduces an educational production function that maps student discipline to class size and says that this may explain why Catholic schools despite their larger sizes might outperform public schools.

Culture and language Lazear also attempted to study the rise of multiculturalism and linked it to the importance of the linkages between culture and language to the overall population. In a paper in the Journal of Political Economy, he considers culture and language as means to facilitate trade between people and goes on to state that minority populations have incentives to be better assimilated to the larger society and learn the majority language and cultural elements so as to have a larger pool of potential trading partners. Assimilation is less likely when the incoming population's culture and language is broadly represented in the larger society. He goes on to say that in a pluralistic society, governmental actions that encourage diverse cultural-immigration over concentrated immigration can increase societal welfare.

Entrepreneurship and skill acquisition Attempting to identify attributes that enable entrepreneurship, Lazear drew a correlation between successful entrepreneurs and skill acquisition. In a paper in the Journal of Labor Economics in 2005, he states that successful entrepreneurs would need to be broad based in their skills or 'jacks-of-all-trades,' rather than excelling in any one specific skill. With data from Stanford alumni, he draws a correlation between students who have had a diverse work and educational backgrounds being more likely to be successful entrepreneurs than those who have focused on one role or on one subject.

Awards and recognition Lazear won a number of awards over his career. Among those are:

Personal life Lazear was married to his wife Victoria, a litigation consultant, and had a daughter. He was known to enjoy outdoor activities, and was an avid traveler, skier and mountain biker.

Lazear died from pancreatic cancer on November 23, 2020.

Publications

Books Chapter-preview links.

Description and preview. Lazear, Edward et al., ed. (2004). Personnel Economics, Elgar, with 43 articles dating from 1962 to 2000 (link to contents link here).

Articles/research papers Lazear, Edward P. (1979). "Why Is There Mandatory Retirement?" Journal of Political Economy, 87(6), pp. 1261-1284. Lazear, Edward P., and Sherwin Rosen (1981). "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, 89(5), pp. 841-864. Lazear, Edward P. (1986). "Salaries and Piece Rates," Journal of Business, 59(3), pp. 405-431. Lazear, Edward P. (1999). "Personnel Economics: Past Lessons and Future Directions," Journal of Labor Economics, 17(2), p. 233 [pp. 199-236. (Presidential address to the Society of Labor Economists.)

Lazear, Edward P. (2000a). "Economic Imperialism," Quarterly Journal of Economics, 115(1), pp. 99-146 . Lazear, Edward P. (2000b). "The Future of Personnel Economics," Economic Journal, 110(467), pp. F611-F639. Lazear, Edward P. (2000c). "Performance Pay and Productivity," American Economic Review, 90(5), pp. 1346-1361. Lazear, Edward P., and Kathryn L. Shaw (2007). "Personnel Economics: The Economist's View of Human Resources," Journal of Economic Perspectives, 21(4), pp. 91-114.

Lazear, Edward, P. (2008). "personnel economics," The New Palgrave Dictionary of Economics, 2nd Edition, v. 6, pp. 380–84]. Abstract.