External ineficiency in education-inequity betwen the characteristics of graduates and the job market-is a problem in Indonesia and many other countries. Job markets at the junior secondary level are very tight in Indonesia with low levels of unemployment at al ages, short job-search times, and high real rates of return. Unemployment, however, among the senior secondary vocational and senior secondary general schol graduates is high, even though the real rates of return are also high. The same is true for colege and university graduates. Rates decrease, however, as years pas after graduation. There are several reasons for this external ineficiency: underinvestment in secondary education, increased use of market signals for planing and anual budgeting decisions, exces "social demand" for higher education and insuficient resource recovery, inacurate selection criteria, and inadequate educational financing methods. Several policy options could be implemented. The importance of education to economic growth and to reducing inequality can be substantial. But continuous improvements must be made in the external and internal eficiency of education and preparation for jobs. Chapters include information on universal basic education, market signals and labor market analysis, human resource development, financing education, the economics of schol expansion, higher education, and graduate job placement. (JPT)