This paper presents empirical evidence on the determinants of labour market earnings for males and females in the slums of Rio de Janeiro. The data used is from a survey of 1,704 households at 51 slums from the city of Rio de Janeiro, augmented with contextual information from the 2000 census as well as GIS information on the location of these communities. Several tests of the labour market segmentation hypothesis were implemented. This work suggests that the informal sector can be a rational choice from the workers point of view, in particular at a younger age. In addition, it also supports the existence of selection e_ects, which suggests that occupational choices are non-random, and must be taken into consideration through a two-step estimation of the earnings equation.