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Edward Paul Lazear (, ; August 17, 1948November 23, 2020) Nominations of Edward P. Lazear, Randall S. Kroszner, and Kevin M. Warsh, February 14, 2006, Volume 4, p. 35. was an American economics, 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.
Lazear received a Bachelor of Arts and a Master of Arts in economics from the University of California, Los Angeles in 1971. His wife said he struggled at first, until he took an economics course and did well. He received a Doctor of Philosophy in economics from Harvard University in 1974.
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. He had also been the Morris A. Cox Senior Fellow at the Hoover Institution since 1985. During his time here, he was the founding editor of the Journal of Labor Economics, 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, and the IZA Institute for the Study of Labor in Bonn. He was the Astra-Erikkson Lecturer and the 1993 Wicksell Lecturer in Stockholm. 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.
In a transformative paper in the American Economic Review, in 2000, he studied the relationship between incentive-based pay and productivity and concluded that a shift towards incentive-based attracted more efficient workers and contributed to an increased worker output. 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 a paper earlier in his career in 1979 in the Journal of Political Economy, titled, "Why is there Mandatory Retirement?," he had explored the driving motivations behind mandatory retirement. 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. The Congress outlawed this practice in 1986.
Lazear built on the lifetime payout thinking, and working with Professor Sherwin Rosen from the University of Chicago, introduced tournament theory as a way to allocate wages and compensation where wage differences are based not on marginal productivity but instead upon relative differences between the individuals.Edward P. Lazear and Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, 89(5), pp. 841-864 . 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 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.
In a commentary on the job growth in 2018, when the jobless growth rate was below 4%, he had said that the Federal Reserve did not need to intervene on fears of the economy overheating, and had suggested that economists didn't need to worry if the job growth could continue much further. The job growth went on for an additional year and a half before the coronavirus disease 2019 pandemic hit the world.
Prior to serving as chairman of the Council of Economic Advisors, Lazear was a member of Bush's President's Advisory Panel for Federal Tax Reform, established in 2005. He had worked with nine other members on reforms to the Internal Revenue Code to provide policy options without impacting the revenue collections.
Lazear also studied high-stakes testing, and educator fears that high-stakes testing will create incentives to focus on learning to the tests at the cost of not learning aspects that are less likely to be included in the tests. In a paper in the Quarterly Journal of Economics in 2006, he compares this to deterrents that deter drivers from speeding, and emphasizes the costs of learning and of monitoring. When police locations are mentioned to drivers on a freeway, speeding occurrences are reduced. So, when the fines from speeding tickets are higher relative to benefits from speeding and there are sufficient police personnel, it is better to keep the locations a secret, resulting in higher compliance levels across all locations. Similarly, with the introduction of costs of learning and costs of monitoring, he goes on to say that high cost learners will learn more when they are told of the contents of the exam. He further goes on to make a case that tests should be well defined for younger students and more amorphous for advanced students.
Lazear died from pancreatic cancer on November 23, 2020.
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