US labor markets have experienced rising inequality over the past 30 years — as evidenced by an increased gap in wages earned by high-skill workers (e.g., college graduates) and low-skill workers (e.g., high school graduates). Empirical evidence documenting this evolution of inequality comes...

Economists generally assume, implicitly, that "the return to schooling" is invariant across local labor markets. We demonstrate that this outcome pertains if and only if preferences are homothetic - a special case that seems unlikely. Our theory predicts that returns to education will instead be...