This study first offers a brief literature survey of labor market discrimination due to ethnicity against the indigenous and Afro-descendant population in Ecuador, a largely mestizo country. We use ethnic self-identification reported in the 2000 EMEDINHO survey as a proxy for ethnicity. Next, we introduce an extended wage differential decomposition model for wage earners based on the traditional Oaxaca-Blinder methodology and a system of simultaneous equations. Using the 2000 ENEMDUR employment survey we then estimate wage, education, sector and geographic outcome differentials due to endowments and due to discrimination between two designated ethnic clusters (i) indigenous people and Afro-descendants and (ii) mestizos and whites. This methodology allows us to identify and measure the direct and indirect channels through which discrimination impacts wages. We obtain higher estimates for discrimination based on a comparative analysis of our results versus two other studies available for the country. We find evidence also about the role that the intergenerational transmission of human capital from parents to children has on education and labor market outcomes.