Capabilities, Allocation and Earnings

The basic message of this book is that the labor market can be usefully interpreted as a confrontation of workers who have heterogeneous capabilities and tastes with jobs that are heterogeneous in the potential productivity of given individual capability endowments. On the demand side the model is used to analyze division of labor, while on the supply side it is used to study schooling decisions and the effects of schools on the resulting structure of the labor force. Equilibrium is characterized and some optimimum properties are studied before the empirical work is presented. The empirical work consists of models for the allocation of individuals to jobs and of earnings functions. The relation between the two is studied and some underlying characteristics of the functioning of labor markets are demonstrated.