Newcomers often face difficulties breaking into labour markets. Even highly educated and skilled workers without work history often struggle to land their first jobs. An important reason for this is that it is difficult for prospective employers to be sure of such unproven workers’ productivity Pallais (2014). This is especially true in online labour markets or markets where buyers and sellers of digitally deliverable freelance work are matched remotely through online platforms. Without direct interactions such as face-to-face interviews, worker quality and motivation are especially difficult to ascertain Autor (2001); Malone and Laubacher (1998). These information frictions are further exacerbated by the global nature of online labour markets, as prospective employers are faced with evaluating freelancers from unfamiliar backgrounds. This leads to outcomes where new freelancers face difficulties breaking into the market, whereas older, already screened freelancers have an upper hand due to the fact that there is less uncertainty about their productivity. Partly due to these reasons many online freelancing platforms are extremely unequal in terms of earnings.
Several online labour market platforms have introduced “skill certification schemes” to help skilled but unvetted newcomers break into the labour markets. The purpose of this paper is to empirically and theoretically evaluate whether completing skill certificates helps freelancers. We demonstrate empirically that obtaining skill certificates operates as a type of a signalling device in the spirit of Spence (1973). Skill certificates do not increase freelancers’ productivity, but demonstrate their ability, and consequently lead to decreased employer uncertainty and increased freelancer earnings. In a textbook version of a signalling model, the agents’ signalling cost depends only on their ability. We argue that in the context of online labour, the net benefit of signalling, and therefore, the freelancers’ decision to signal, is determined by two parameters: their ability and the uncertainty that prospective employers have about their ability.
This paper studies the effects of a voluntary skill certification scheme in an online freelancing labour market. The paper show that obtaining skill certificates increases a worker’s earnings. This effect is not driven by increased worker productivity but by decreased employer uncertainty. The increase in worker earnings is mostly realised through an increase in the value of the projects obtained (up to 10%) rather than an increase in the number of projects obtained (up to 0.03 projects). In addition, the paper finds evidence for negative selection to completing skill certificates, which suggests that the workers who complete more skill certificates are, on average, in a more disadvantaged position in the labour market. Finally, skill certificates are found to be an imperfect substitute to other types of standardised information. On the whole, the results suggest that certificates play a role in helping new workers break into the labour market, but are more valuable to workers with at least some work experience. More stringent skill certification tests could improve the benefits to new workers.
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