Self-selection in education with matching frictions

This paper studies the efficiency of educational choices in a two-sector/two-schooling level matching model of the labour market where a continuum of heterogenous workers allocates itself between sectors depending on their decision to invest in education. We show that self-selection in education is inefficient, and overeducation takes place. Too many workers are willing to acquire education, as they do not internalize the impact of their education decision on the others' wage and employment perspectives.