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Segmentation theory argues that the labor market is composed of a variety of non-competing segments between which rewards to human capital are determined by institutional structures. This paper presents new evidence on sector-wise earning differential for both male and female samples to assess the implications of segmentation theory.

Primary data is collected through simple random sampling technique with a survey questionnaire from 954 employed individuals of Southern Punjab, the less developed region of Pakistan. OAXACA decomposition technique is adopted to estimate earning differential.

Empirical estimates of OAXACA decomposition reveal that the extent of discrimination between public and private sector is greater in case of females than in male samples. Education and region are crucial factors behind sector-wise earning differential for both male and female samples. Job characteristics are more valued than occupation to explain sector-wise earning differential. Occupation largely contributes to explain public–private sector earning differential in male sample than in female sample. Moreover, job security is highly valued by females than males.

Segmentation of the institutional structure in a developing economy is empirically verified by using primary data due to non-availability of data on some variables from secondary data sources. This study attempts to explore the key factors of public–private sector wage differential for male and female samples separately due to the differences in their preferences for work and earning functions.