American Economic Review Vol. 115 No. 9 2025

Labor Market Power, Self-Employment, and Development

Francesco Amodio¹; Pamela Medina²; Monica Morlacco³

¹ McGill University and IZA, Department of Economics and ISID (email: ) · ² University of Toronto, UTSC and Rotman School of Management (email: ) · ³ University of Southern California, Department of Economics (email: )

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.

DOI

10.1257/aer.20230490

Volume

115

Issue

9

Pages

3014-3057

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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