education explains only about 30 per cent of variations in labour compensation (Mortensen 2005). Although this may reflect unobservable labour skills (Rosenzweig 1988), Mortensen (2005) finds that labour heterogeneity is robust to inclusion of numerous controls. Teal (2011) cites recent evidence showing that segmentation is common in
African labour markets, particularly between firms of different sizes. Söderbom et al. (2002)
show that when observable and unobservable aspects of human capital are controlled for, wages
are much higher in larger firms. Kingdon et al. (2006) conclude that non-competitive theories
such as efficiency wages and bargaining models explain this effect better than human capitaltheory. In the formal manufacturing sector, Fox and Oviedo (2008) show that wage premia do
not reflect productivity differences.