Becker Meets Ricardo: Multisector Matching with Communication and Cognitive Skills∗

This paper presents a tractable framework for studying frictionless matching in education and labor markets when individuals have heterogeneous communication and cognitive skills. In the model, there are gains to specialization and team production, but specialization requires communication and coordination between team members. Individuals accumulate cognitive skills in schools when young. As adults, they decide whether to work as a manager or a worker in a firm or become a teacher in a school. Individuals with more communication skills will become either managers or teachers and earn higher wages. Each manager manages several workers and each teacher teaches several students, with their span of control being determined by their communication skill. These individuals also invest discretely more in education than marginally different individuals who become workers. Equilibrium is equivalent to the solution of an utilitarian social planner solving a linear programming problem. ∗A previous version of the paper is circulated under the title “Becker Meets Ricardo: Multisector Matching with Social and Cognitive Skills.” McCann thanks the University of Nice Sophia-Antipolis and the University of Chicago’s Becker-Friedman Institute for Economic Research and Stevanovich Center for Financial Mathematics for their hospitality and support during various stages of this work. Shi and Siow thank SSHRC for financial support. We also thank Gary Becker, Jan Eeckhout, Jim Heckman, Bernard Salanie, Michael Waldman, two anonymous referees, and various seminar and conference participants for helpful comments. †McCann: Department of Mathematics, University of Toronto; Shi, Siow and Wolthoff: Department of Economics, University of Toronto.