Labor Market Power, Self-Employment, and Development

Francesco Amodio, Pamela Medina and Monica Morlacco

American Economic Review, 2025, vol. 115, issue 9, 3014-57

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.

JEL-codes: J22 J23 J31 J42 L13 O14 O15 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Labor Market Power, Self-Employment, and Development (2024)
Working Paper: Labor Market Power, Self-Employment, and Development (2022)
Working Paper: Labor Market Power, Self-Employment, and Development (2022)
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DOI: 10.1257/aer.20230490

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