Immigration, Human–Capital Investment and the Skill Premium Christian Lumpe Benjamin Weigert * University of Konstanz February 2004 This paper analyzes the effect of certain immigration scenarios on the la- bor market outcome of different skill groups. Relative labor supply is a result of educational decisions made by heterogeneous agents. Immigration will affect these decisions since the relative wage changes. Therefore a cer- tain immigration scheme will lead to different potential decision over educa- tion by the native population. We analyze how the measured skill premium changes under different immigration schemes. Under reasonable conditions low skill immigration can magnify the “pure” wage effect resulting in an even stronger reaction of the measured skill premium. Therefore our theoretical model sheds some light on aspects of changing skill premia in industrialized countries experienced during the last decades. Keywords: Wage inequality, immigration, labor supply JEL–Code: F22 ∗ Correspondence: Christian Lumpe and Benjamin Weigert, University of Konstanz, Department of Economics, D 146, D–78457 Konstanz, Germany; email: christian.lumpe@uni-konstanz.de and benjamin.weigert@uni-konstanz.de.