Discussion paper
DP17543 Labor Market Power, Self-Employment, and Development
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, pro-competitive policies aimed at expanding wage employment and reducing reliance on self-employment may unintentionally strengthen labor market power, undermining their objectives.
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