LAUSR

Focusing on the signaling aspect of education, we show that the college wage premium can be U-shaped in the share of the population with a college degree. This prediction is consistent with empirical evidence from a range of countries. Moreover, the equilibrium in our model is unique, which means that we are able to generate empirically-testable predictions linking income inequality and the premium enjoyed by the college educated. Consequently, our model provides a framework for future empirical studies.