Labor Market Power, Self-Employment, and Development
Francesco Amodio, Pamela Medina, Monica Morlacco
American Economic Review · 2025 · Volume 115 · Issue 9
Abstract
This paper shows that self-employment shapes labor market power in low-income countries, with implications for industrial development. Using Peruvian data, we find that wage-setting power increases with employer concentration but less so where self-employment is more prevalent. A general equilibrium model shows that in oligopsonistic labor markets, self-employment raises the supply elasticity of wage labor, weakening employer market power. However, by the same mechanism, procompetitive policies aimed at expanding wage employment and reducing reliance on self-employment may unintentionally strengthen labor market power, undermining their objectives.
Keywords
Time Allocation and Labor Supply, Labor Demand, Wage Level and Structure, Wage Differentials, Monopsony, Segmented Labor Markets, Oligopoly and Other Imperfect Markets, Industrialization, Manufacturing and Service Industries, Choice of Technology, Economic Development: Human Resources, Human Development, Income Distribution, Migration
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