How would the change in the labour market change the market?

Yesterday I discussed the quality of labours in the labour market improved comparing with the previous, today I want to discuss how the quality of labours can reshape the market as well as the economy.

More educated labours are more likely to be more productive than those with lower education qualifications; however, it is possible for some labours to be overeducated. The possibility of overeducation implies a waste of private spending as well as public spending. Moreover, it could also lead to a reduction in the supply of the labour market, as people spend more time at schools, and the overall number of employable workers reduces. In addition, due to sheepskin effect, more people want higher levels of education qualification to differentiate themselves from the rest of the population, the supply in the labour market can be decreasing over time. When there is a reduction in the supply of labours, the wage level in the economy is very likely to increase. When the wage level increases in general, the price level in the economy is also likely to increase.

Moreover, the demand in the market may not change though there is an increase in the wage level because the number of employable people reduces in the economy. Meanwhile, the outputs of the economy may also stay the same, as though the productivity of labours is improved by the increased supply of education, the overall number decreases. The demand and the supply both remain the same, so the price level also remains the same.

Overall, the increase in education supply is likely to improve the productivity of labours and reduce the overall labour supply, so the price level in the economy is likely to be unaffected as the supply and demand do not change significantly.