Overeducation and Instructional Quality. A Theoretical Model and some Facts

This paper studies educational choices in a signaling setting in the presence of heterogeneous working ability imperfectly correlated with schooling costs. We show that even if individuals can use education to signal their ability, pooling equilibria may arise. These equilibria may be characterized by overeducation depending on firms' technologies. The role of instructional quality may be crucial in determining the emergence of this phenomenon. To find evidence of the main implications of the model, we use data of Italian graduates merged with two data sets from the Italian Ministry of Education and the Italian commission for academic research evaluation. Overeducation appears to be strongly determined by university quality and by other variables that characterize the individual's socioeconomic background.