Both skilled and unskilled workers are employed formally and informally in developing economies. However, workers employed informally are often discriminated–they receive lower returns to their individual characteristics compared to those employed formally. What would be the skilled-unskilled wage gap if there were no such discrimination in the labour market? We show that the with-discrimination wage gap is more if the unskilled workers are discriminated more in their employment-share weighted terms. We propose a methodology based on Oaxaca-Blinder decomposition technique to estimate the without-discrimination wage gap, apply it to four rounds of Indian NSSO employment data and find that (i) both types of workers face discrimination, and (ii) the without-discrimination wage gap is significantly less. We also check for the possibility of female workers getting discriminated more in informal employment. © 2020 Informa UK Limited, trading as Taylor & Francis Group.