QED Working Paper Number
988

This paper examines efficient and equilibrium allocations in an economy where agents with diverse characteristics are matched through a time-consuming process to produce output. This is cast in a labour market where workers of different skills match with machines of different qualities. The efficient assignment is not always positively assortative and can be decentralized by a competitive mechanism where firms compete by posting wages and committing to the skill that their chosen machines are intended for. Implications on wage inequality are examined.

JEL Codes
Keywords
Skills: Wage inequality
Frictions
Efficiency
Matching
Working Paper