Abstract
This paper studies the variation in returns to digital retail entrepreneurship across locations in a large online marketplace. Digital platforms enable access to knowledge, resources, and customers across long geographic distances, rendering costs and barriers to business activities less constrained by the local environment. Digital entrepreneurs outperform in rural and low-wage urban areas with lower turnover rates. In slack labor markets, more unemployed individuals cannot find jobs in the wage sector due to job rationing. Digital platforms absorb this excess supply of high-quality labor, which results in a substantial premium in aggregate revenues across digital retailers in locations with slack labor markets. Consistent with this mechanism, the job turnover rate in the local labor market positively moderates local wage's impact on digital retailers' aggregate revenues. In tighter labor markets where workers move between the wage sector and self-employment more frequently, returns to different earnings options converge faster. Our results imply that digital platforms particularly benefit individuals in slack labor markets where local earnings opportunities are limited and workers change jobs less frequently. Our results suggest a close connection between the health of local labor markets and the aggregate returns to digital entrepreneurship in a given region.