Human-capital investment and the wage gap

According to empirical studies, the wage differential by skills evolved non-monotonically in the past decades although the relative supply of skilled labor steadily increased. The present paper provides a theoretical explanation for this finding. In our setting, technological change intertemporally alters the human-capital investment incentives of heterogeneous individuals. As a consequence of changing incentives, the time path of the relative wage is U-shaped while there is a rise in the share of skilled workers.