Gobillon (2005) and Wheeler (2001). Baumgardner’s (1988) finding that physicians in
larger market areas are more likely to specialize is evidence of the effect local market
size has on labor match quality. The study stands out as an effort to relate characteristics
of the local geographic market with the quality of labor matches. This study’s
examination of the skills variation of principals provides new evidence, using a different
empirical approach, on the relationship between urbanization and labor matching.
II. The School District’s Employment Decision
The school district is assumed to search for principals who fit a predetermined set
of required skills. The particular skills sought may reflect characteristics of the
individual district, such as the proportion of its student body in poverty, as well as its
hiring objectives. The Tiebout hypothesis suggests economic efficiency considerations
should at least partially determine the criteria for hiring school administrators. The
economic relationship estimated in this paper requires only that the school district is
consistent in its hiring decisions over the time period studied.
The local labor pool from which the school district hires can be defined by a
uniform distribution of skills. Suppose the school district’s optimal choice in the
distribution is a principal with qk skills. It however incurs search costs in finding qk. The
difference between the desired qk and the skills of the principal actually hired is
represented by (1) D = ∣qk - q'. The cost, in economic terms, of employing a principal
with a skill level less than qk would be the particular school’s inefficiency in producing
education. Also, plausibly, a district may perceive an applicant whose skills exceed qk as
less likely to remain on the job for an extended period. An overqualified principal who
finds a closer job match soon after accepting a school district’s job offer will generate