[Excerpt] The textbook labour market model aggregates all workers, all employers and all sectors of the economy into a single labour market. In this single labour market, workers supply labour, employers demand labour and the rate of pay (termed wage for shorthand) is determined by the intersection of supply and demand.
Segmented labour market analysis proceeds from a different starting point. Workers, employers and sectors are not aggregated together. Rather, two or more labour market segments are identified, the groupings reflecting fundamental differences in how labour supply, labour demand and wage-determination mechanisms operate in different segments. For example, in the South African context, it is meaningful to segment the labour market according to whether or not the workers belong to trade unions, and the unions succeed in raising wages, benefits and other working conditions for their employed members above what they otherwise would be. In the unionized segment of the South African labour market, compensation is determined by bargaining or contract extension, and the terms agreed to are extended to all firms in the industry or region irrespective of size. Otherwise, compensation is determined by supply and demand.
This, then, leads to the fundamental characterization of a segmented labour market. Labour markets are segmented when, for workers of a given type (a) some jobs are better than others in terms of wages, benefits and/or other working conditions, and (b) access to the good jobs is rationed, meaning that some workers who would like jobs in the better paying segments and who are capable of performing those jobs are able to get such jobs but others who also would like such jobs and are capable of performing them cannot.