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Imperfect competition in labor markets can lead to efficiency losses and
lower aggregate output. This paper examines how variations in labor
market competitiveness may account for differences in GDP per capita
among countries. By structurally estimating an oligopsony model with
free entry across different development stages, we find that labor market
power increases with GDP per capita. Wage mark-downs vary from
54% in low-income countries to around 24% in the richest ones. If labor
markets in poorer countries were as competitive as in more developed
ones, their output per capita could rise by up to 45%.
