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This paper develops and estimates an overlapping generations general equilibrium model of labor earnings, skill formation, and physical capital accumulation with heterogenous human capital. The model analyzes both schooling choices and post-school on-the-job investment in skills in a framework in which different schooling levels index different skills. A key insight in the model is that accounting for the distinction between skill prices and measured wages is important for analyzing the changing wage structure, as they sometimes move in different directions. New methods for estimating the demand for unobserved human capital and for determining the substitution relationships between skills and capital in aggregate technology are developed and applied. We estimate skill-specific human capital accumulation equations that are consistent with the general equilibrium predictions of the model. Using our estimates …