Skill requirements in the labour market have significantly changed over the past two decades. The restructuring of the economy is making the labour market increasingly knowledge-based. The education system has reacted to this structural change, but as the pace has been relatively slow, many graduates remain without adequate skills and insufficiently prepared to apply knowledge in unfamiliar settings. Moreover, strong selectivity early in the education system reinforces student’s socio-economic background, leading to an excess of low skilled workers with poor labour market prospects. This contributes to persistently low employment rates and low productivity gains, slowing down the income convergence process. The education system needs to improve learning outcomes by better aligning student qualifications with labour market needs. Improving overall educational outcomes would also make the education system more equitable and inclusive. Bolstering the supply of skills requires lifelong learning and improving the access to labour market to those who have left the education system without proper skills. In return, this will also increase on-the-job training, which is a key driver of acquiring competences after graduation. In addition, mobilising untapped skill resources, particular educated younger women, would raise employment, which is needed to confront the labour market problem arising from population ageing.