This dissertation examines two related questions. First, it estimates the effect of growth in the demand for skilled and unskilled labor on rural household incomes and the rural wage structure. Second, it examines the effect of growth in household incomes and in labor market returns to education on household educational investment. The contribution of this dissertation is to consider these questions jointly: I first examine how variation in the demand for skilled and unskilled labor alters incomes and returns to education in rural areas, and then examine how this variation in incomes and returns feeds through to household education choices. To do this, I first develop a model of household education choice that illustrates the effects of policy induced expansions in skilled and unskilled manufacturing labor demand and increases in agricultural productivity on returns to education and income for skilled and unskilled workers. Second, I exploit plausibly exogenous variation in skilled and unskilled labor demand caused by increases in regional agricultural productivity and policy driven variation in manufacturing employment for different skill levels. The results show that an increase in unskilled labor demand decreases returns to education for all workers, but has income effects that vary by skill and land ownership. An increase in skilled labor demand increases returns to education for all workers but only increases income for skilled households. The results on educational investment show that investment for boys responds positively to both income and returns to education. For girls, investment in education only responds to increases in income, but not to returns.