Occupational mismatch and market power

Felipe Balmaceda

Journal of Development Economics, 2025, vol. 177, issue C

Abstract: This paper shows that local labor market power provides a rationale for the higher prevalence of self-employment in developing economies relative to developed economies. Labor market power creates occupational mismatch–too many workers choose self-employment relative to the competitive benchmark. Because of labor market power, workers underinvest in skills that increase paid employment productivity and overinvest in those that enhance self-employment productivity. Under certain conditions, this exacerbates the occupational mismatch. We also consider a quantity-type product market competition model where self-employed individuals form a competitive fringe. Product-market competition increases the intensity of competition for workers and reduces occupational mismatch.

Keywords: Labor market power; Self-employment; Paid employment; Skill acquisition; Skill premium; Occupational mismatch; Product market competition; Competitive fringe (search for similar items in EconPapers)
JEL-codes: G32 J24 L26 M13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:177:y:2025:i:c:s0304387825000872

DOI: 10.1016/j.jdeveco.2025.103536

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