A theoretical framework is developed for incorporating class conflict dynamics into accumulation theories of labor market segmentation by analyzing the transaction costs of conflict under varying conditions of economic structure and power resources. The theory has the "bottom up" perspective developed in the "new social history." Skill is treated as a status for which workers struggle and internal labor market hierarchies are considered products of the conflicting strategies between capital and labor. Split-labor market theory is also discussed as a method for explaining why workers discriminate. This theory is amended to distinguish between market and class interests of workers, and to take into account the self-perpetuating economic effects of racist discourse. My historical analysis of the metal-mining industry emphasizes the formation of ethnically stratified segments of the labor market in which Chinese and Mexican workers were denied access to the craft-internal labor market for skilled workers. Competition over mining claims under the threat of takeover by mining companies created ethnic antagonism between Chinese and white independent petty-commodity miners. Discrimination by the white independent miners crowded the Chinese into the labor market, which reduced Chinese wages, and induced conflict between white and Chinese wage workers in the company-mines. Ethnic antagonism in combination with intense class struggle produced a segregated labor market between Mexican miners and Anglo supervisors during the initial proletarianization of the mines. Mexican miners were later displaced by Cornish miners who developed a segregated craft-internal labor market. Analysis of the labor process shows that mechanization initially facilitated the struggle by Cornish miners for a skilled status, contrary to homogenization expectations. Mexican miners were relegated to unskilled manual positions.