DP18828 Global Labor Market Power
We estimate labor market power among manufacturing firms across 82 low and middle-income countries using over 13,000 observations from a harmonized global dataset. Within local labor markets, larger and more productive firms exhibit higher wage markdowns and pay lower wages. Across countries, labor market power follows a strong hump-shaped relationship with the share of self-employed workers. This pattern is largely explained by labor market institutions: in countries with unemployment protection, wage markdowns rise with self-employment rates, while the opposite occurs in countries without it. We interpret this finding through the lens of a simple oligopsonistic labor market model with frictions. Self-employment prevalence correlates with the elasticity of labor supply to the wage paid, and labor market institutions can change the sign of this relationship.
