Edward Lazear, Bush’s top economist during financial crisis, dies at 72

Edward Lazear, an innovative labor economist who sussed out workplace dynamics as an academic and played a critical role in the government response to the 2007-2009 financial crisis as chairman of President George W. Bush’s Council of Economic Advisers, died Nov. 23 at his home in Reno, Nev. He was 72.

His death was announced by Stanford University, where Dr. Lazear was a professor of economics and a senior fellow at the Hoover Institution. The cause was pancreatic cancer, said his wife, Victoria Lazear.

Widely considered one of the foremost labor economists of his generation, Lazear brought to the socalled dismal science a quality that former Columbia Business School dean R. Glenn Hubbard, a predecessor at the Council of Economic Advisers, described in an email as “a caffeinated interest in an economics to help people.” Lazear adhered strongly to the tenets of freemarket capitalism but attracted admirers among liberal as well as conservative economists with the elegance of his ideas.

“He was somebody who would take a very complex problem and think about it in just an amazingly simple way,” Kevin Lang, a professor of economics at Boston University and editor in chief of the Journal of Labor Economics, which Lazear founded, said in an interview.

Lazear was regarded as the father of a field known as personnel economics, which aims to explain and ultimately improve the management of human resources.

In a noted article published in the Journal of Political Economy in 1979 - titled “Why Is There Mandatory Retirement?” - Lazear identified what Lang described as an “implicit contract” between many workers and their employers. According to the contract, workers are underpaid for their work, relative to what they produce, when they are young and overpaid when they become more senior.

“They’re holding back part of your compensation to create an incentive for you to work hard now,” Lang explained. “Later in your time with that firm . . . they start returning the bond to you, but eventually they’ve returned the bond,” at which point, according to Lazear’s argument, the employee should retire.

In another paper, published in 2000 in the American Economic Review, Lazear studied changes in compensation at the Safelite Glass Corp., a manufacturer of replacement windshields, to test the assumption that workers respond to incentives.

In the mid-1990s, the company replaced hourly wages with piece-rate pay, in which workers were paid according to the number of windshields they installed.

The change, according to Lazear’s analysis, resulted in a 44% gain in average output per worker. “The firm shares the gains in productivity with its workforce,” he wrote. “A given worker receives about a 10-percent increase in pay as a result of the switch to piece rates.”

Although Lazear was most known for his work on personnel economics, he also “conducted fundamental research on the economics of entrepreneurship, immigration, language, education, and sales,” noted Robert Moffitt, a professor of economics at Johns Hopkins University and president of the Society of Labor Economists, which Lazear founded.