Self-employment opportunities shape the market power of employers in low-income countries, with implications for manufacturing sector growth and industrial policy.
The creation of salaried jobs is one of the hallmarks of economic growth. In poor countries, good (stable and formal) jobs are scarce as many local labour markets feature only a handful of medium to large firms. At the same time, self-employment is common – even within manufacturing – and workers switch often between wage work and self-employment. In this research, we ask if this matters for wage employment sector growth and industrial policy. Using data on firms and workers in Peru, we investigate the extent to which employment at the local level is concentrated in a few firms, and whether this correlates with wages as well as self-employment rates and earnings. We then develop a theoretical model that builds upon the salient data features, estimate it using Peruvian data, and use it to evaluate the impact of different industrial policy instruments.
