This paper studies optimal labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both efficiency and equity. Frictions in the matching process create unemployment and...

We show that, in settings where meetings can be multilateral, the allocation rule proposed by Mortensen (1982) can be relatively straightforward to implement: as a local auction conducted by sellers. The implications of using this mechanism in a simple model of the labor market are then...