Abstract: The quality of education appears to be negatively correlated with both the overeducation of workers at the tasks they perform and the unemployment rate across EU-15 countries, and positively correlated with the wage premium associated to tertiary education. We develop a model of the labor market with frictions to quantitatively investigate the impact of the education outcomes on the labor market. We show that both the ability of educated and non educated workers have sizable effects on the incentives of firms regarding the type of vacancies they open and also regarding the incentives of educated workers as of where to search for a job. Therefore education outcomes are relevant to understand the overeducation phenomena observed in the labor market. According to our quantitative analysis had the quality of education observed in Spain been similar to the European average then the overeducation rate would have been between 5 and 10 percentage points lower and the unemployment rate of the two types of workers would be reduced by 40%, but the tertiary education wage premium would be slightly smaller than in the benchmark economy.

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