88

This paper surveys the literature that uses matching models to analyze the relationship between education and unemployment. The aim is to explain the existence of a positive correlation between education and unemployment observed in some European countries over the past decades. The literature emphasizes two mechanisms: (1) unemployment may raise the incentives to gain an education since this reduces the risk of being unemployed; and (2) higher educational attainment may in fact increase unemployment, at least for the less skilled. Finally, the paper examines the efficiency of education-related decisions in a context of unemployment. Workers may under-invest in education owing to a hold-up problem but may over-invest because education increases the probability of exiting unemployment.