Overeducation, Job Competition and Unemployment

The changing wage and employment structure in some OECD countries has been attributed to increased levels of education and technical change in favour of skilled workers. However, in the Netherlands and some other OECD countries the wages of skilled workers did not rise, whereas investment in skills rose dramatically. This paper offers a theory which is able to explain the dramatic increase in the level of education and skills without rising wages since the early 1980s. In this respect, we integrate the supply side framework (human capital investments) and the demand side (containing endogenous skill upgrading as a result of job competition and screening) in a general equilibrium model. In this way we provide a theory for the empirical observation of rising unemployment levels among unskilled workers and rising employment levels of skilled workers with relatively stable wages.