Overschooling and unemployment

Although overschooling is regarded as the result of imperfect allocation in the labour market, hardly any attention has been given to the influence of another imperfection, unemployment. Several researchers report about an increasing incidence of overschooling in the Netherlands. Although a lot of research has been done in the Netherlands on overschooling, this is not a phenomenon restricted to the Netherlands. Overschooling was found and measured in the United States, Germany, Spain, Portugal the United Kingdom and may be around in other Western European countries as well. Remarkably, however, is that in this line of research no attention has been paid to the effect of unemployment on overschooling. Because it can be argued that almost all unemployed are overschooled, the incidence and amount of overschooling and its rate of return should be directly affected by the unemployment rate in a country. However for the Netherlands we cannot find a relation between the unemployment rate and the amount of overschooling. The amount of overschooling is in 1998, a year with low unemployment, as high as in 1985, a year with high unemployment. After correcting the selectivity bias, caused by the unemployed, we also do not find changes in the rate of return on education, suggesting that wages in the Netherlands are rather sticky. Therefore efficiency wage theory seems to be a better candidate in explaining overschooling than a matching model as propesed by Hartog.