Superstar Teams

Production increasingly requires specialized expertise. To study the macroeconomic implications, I develop a tractable theory in which firms assemble teams of workers with heterogeneous task-specific skills. Deriving the firm’s production function from optimal task assignment shows that output is maximized when coworkers excel at different tasks yet possess similar overall talent. Crucially, greater skill specificity, while raising potential productivity, endogenously amplifies talent complementarities, i.e., the productivity loss from talent mismatch. This promotes talent concentration into select firms with “superstar teams,” though search frictions prevent perfect sorting. Using German panel micro data, I document industry patterns consistent with this mechanism and calibrate the model. The quantified model shows that, first, growing skill specificity since the mid-1980s has amplified sorting, explaining a significant share of the widely documented “firming up of inequality”. Second, “Smithian” productivity gains from specialization are muted when labor market frictions impede the matching of coworkers with complementary expertise.