The human capital theory believes that education contributes to the increase of workers' wages, however, this theory has many problems. The human capital theory analyses the equilibrium of education investment and assumes that the marginal return of education investment is diminishing, but empirical research shows that the marginal return of education investment is increasing. When explaining the effect of education on wage increases, the human capital theory does not link education investment with the supply and demand of the labor market, whilst any change in wages cannot be reasonably explained if it is not related to changes in the supply and demand of the labor market. To this end, this study explains the role of education in raising wages: investment in education also increases the scarcity and demand of the educated in the labor market, thereby increasing their bargaining power and thus increasing their wages. This theoretical explanation shows that with the development of education, the scarcity of workers with higher levels of education in the labor market decreases, leading to a decline in the rate of return on investment in education. Empirical research shows that with the increase in the gross enrollment rate of higher education, the return of higher education decreases, which is regarded as supporting evidence for the new explanation of human capital theory.