Workers-to-Firms Matching When Skills Become Unbundled

In traditional labor markets, workers transform their multidimensional skills into bundles of tasks, which they supply to their employing firms. We examine how labor markets change as new institutions and technologies make it less and less costly for firms and workers to unbundle and trade stand-alone tasks. Our analysis relies on a general equilibrium model of the labor market under bundling, combined with a full model of task unbundling. The contrast between the old world (where bundling prevails) and the new world (with unbundled tasks) is stark. As unbundling costs fall and outsourcing markets grow, firms reinforce hiring in skills where they have a comparative advantage yielding a more polarized matching equilibrium and a flattened wage schedule. Generalist workers – endowed with a balanced set of skills – tend to benefit whereas specialists tend to be negatively affected by markets opening. Descriptive evidence, using Swedish data sources on workers’ skills and their employing firms, is also presented.