Adjusting Skillset Cohesion in Online Labor Markets: Reputation Gains and Opportunity Losses

In online labor markets, contractors’ ability to charge for their services largely depends on their skills. To keep up with shifting labor market needs, contractors often expand their skills with new skills. When the new skills are similar to the contractors’ current skills, they often increase skillset cohesion (i.e., the average similarity of skills in a skillset). However, when the new skills have little similarity with contractors’ current skills, skillset cohesion decreases. Despite the recent surge in research that studies remote contractor behavior, little is known on how such adjustments of skillset cohesion affect contractor value in digital workplaces for short-term work. To investigate, I argue that skillset adjustments affect market value through changes in the contractor’s perceived reputation on the new skills and the additional job opportunities that new skills create. Building on prior work on individual-level exploration-exploitation, I hypothesize that compared with skills that decrease cohesion, skills that increase cohesion result in reputation gains and opportunity losses. If reputation gains are greater than opportunity losses, increasing skillset cohesion will result in higher market value than decreasing skillset cohesion. However, if the opposite is true, increasing skillset cohesion will result in lower market value than decreasing skillset cohesion. Empirically, I measure a contractor’s market value through hourly wages and hiring rates and skillset cohesion through word embeddings. Analysis of a panel data set of 47,638 tasks illustrates these tradeoffs of increasing skillset cohesion: for hourly wages, reputation gains are smaller than opportunity losses; hence, all else being equal, increasing skillset cohesion has a relatively negative effect on wages. However, for hiring rates, the opposite is true: increasing skillset cohesion increases contractor hireability. As the first study to explain the effects of adjusting skillset cohesion in digital workplaces, the work allows contractors to make better-informed decisions and guides managerial interventions.