Local Labor Market Frictions and Platform-Dependent Entrepreneurship

This paper explores how local labor market frictions affect the performance of entrepreneurial complementors in a large platform marketplace. Empirically, we show that shop-level revenues were significantly higher when entrepreneurs started their platform-dependent businesses in rural areas and slacker labor markets measured by less frequent quits and fewer job openings at the state level. We also find that labor market slack suppresses the positive association between local wages and entrepreneurial revenues on the platform. These findings suggest that platform-dependent entrepreneurs entering the platform as complementors when local labor market frictions were higher eventually perform better. On the other hand, local labor market frictions disconnect the revenues of platform-dependent entrepreneurs from local wage dynamics.