Working Paper: CEPR ID: DP17543
Authors: Francesco Amodio; Pamela Medina; Monica Morlacco
Abstract: This paper shows that self-employment shapes labor market power in low-income countries, affecting industrial development. Using Peruvian data, we show that wage-setting power increases with concentration, but less so where self-employment is more prevalent. A general equilibrium model shows that while concentration increases oligopsony power, it also raises labor supply elasticity by pushing workers into self-employment, thereby mitigating labor market power. Conversely, pro-competitive policies that draw workers into salaried jobs may increase labor market power, with limited overall impact. We demonstrate that these policies are only effective if they tackle labor market power.
Keywords: development; monopsony; sorting; self-employment
JEL Codes: J2; J3; J42; L10; O14; O54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| self-employment (L26) | labor market power (J42) |
| employer concentration (J39) | wage-setting power (J38) |
| self-employment (L26) | wage-setting power (J38) |
| self-employment (L26) | labor supply elasticity (J20) |
| eliminating labor market power (J42) | effectiveness of industrial policy (L52) |
| self-employment provides a valuable outside option for workers (J68) | sensitivity to wage changes (J31) |