The Lie of the Education Premium.

There is a grievous logical error with the assertion that since “The ratio of the wages of those who have only a bachelor’s degree to those who only have a high school degree has risen steadily since 1980,” (Raghuram G. Rajan, "Fault Lines") therefore better education would reduce the income gap. The correlation between the two exists, the causation and therefore the remedy are dubious at best.

Take a hypothetical economy where there are two types of jobs, say service jobs and farming. Education makes a person better at both jobs; the gains are 5% more efficient per year of schooling for service, and 2% more efficient per year for jobs in farming. The efficiency gains will dictate that 1 year more educated employees are paid somewhat more than uneducated ones; about 5% more for service and 2% more for farming (assume that there are sufficient jobs; this should not reduce generality.)
Now, if the jobs both produce similar levels of output, and therefore employers pay similar amounts for the jobs (say, with only a high school education, $100,) educated workers will take service jobs; someone with a masters (6 years of additional school) would make $134, and the same person working in farming would make about $113. However, if farming (read: investment banking) has a starting salary of 50% more, this is no longer true. The same person, with a masters, will take the job in farming, getting paid $168. All of the less educated workers will be pushed into service jobs.

No matter how big or little the actual gains due to education are, the educated workers are pushed more towards industries that are more profitable overall. The economy pushes towards greater economic gain, measured my total worth of productivity, and ignores efficiency of gains due to education.

Educated people get paid more because industries differ in profitability. The number of jobs in farming won't increase because there are more people with PhD's. The bar for entry into the profession just gets raised. Only Ivy-League educated WASPS can work in the most profitable jobs in farming (again, read investment banking.) This means that the income gap isn't being caused by differing education, it's caused by the market valuing work in some market sectors more than others, and having any premium at all for education.