Recurring evidence that workers with similar skills do not necessarily earn the same wages led to the formulation of an alternative to the conventional market theory, namely, the segmented market theory. This theory posits that certain skills are distributed not among prospective employees but among jobs, in relation to the technology of those jobs. These technologically defined skills can be acquired only on the job. If this is indeed the case, then the redistribution of earnings would require policies designed to improve the technology that characterises low-skilled jobs and eliminate hiring discrimination. This study develops a theoretical framework for analysis of technologically induced labor market segmentation on the economic returns to such institutionally acquired forms of human capital as formal schooling and manpower training. This theory refines the dual-market hypothesis by proposing a positive feedback model in which technological innovation is an endogenously determined mechanism. The study poses three specific questions left unanswered by existing market segmentation theories up to now. First, if market segments do exist, how can they be isolated? Second, what specific roles do schooling and technology play in the market segmentation process? Third, how do market segmentation and technologically induced skill specificity affect returns to employment? (CP)