This article 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.
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