The study reviews orthodox theories of labor markets, presents new formulations of segmentation theory, and provides empirical tests of segmentation in the United States and several developing nations. Orthodox labor market theory views labor as being paid for its contribution to production and that investment in education and vocational training for the poor will yield payoffs equal to gains by higher income whites. Segmented labor market theory explains how and why workers', owners', and managers' labor markets function differently and why the labor market is fragmented into persisting groups with options restricted by historical, systematic forces. The document is presented in seven chapters. Chapter I stresses the importance of economic theories to educational planning, introduces segmented labor market analysis, and explains how segmented labor market analysis relates to planning processes in industrializing societies. Chapter II presents orthodox theories of labor markets to bring the reader up to date and to provide a framework for contrasting segmentation theories with orthodox literature. Chapter III describes dual labor market theories and offers criticisms of these theories by economists. Chapters IV and V examine the validity of U.S. and Third World labor market characteristics as predicted by segmentation analysts. Chapter VI analyzes implications of segmentation theory for development planning. The final chapter presents an agenda for future research. (Author/DB)