The standard microeconomic theory of labor market assumes that unemployment operates as the labor discipline device in advanced countries. What is this device in developing countries? This paper seeks to give an answer to this question by constructing a new theoretical model and by confronting its predictions against a set of empirical regularities that characterize the functioning of labor markets in developing countries. In comparing the two models, the paper shows the existence of a generalized labor market theory in which inequality among workers constitutes the common labor discipline device, which just takes different forms in advanced and developing countries.