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Advertising in Online Labor Markets: A Signal of Freelancer Quality?

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  • Jonas Hannane

Abstract

Freelancers face cold-start problems in online labor markets: getting hired is very difficult without ratings, while obtaining a rating is impossible unless already having been hired. According to economic theory and empirical evidence, advertising can serve as a signal of product quality for experience goods. As such, advertising might help skilled new freelancers without reputation on a platform to obtain a first job, by providing a quality signal to employers. This study empirically explores the role of advertising in online labor markets using transactional data from a major platform. While indeed newer freelancers tend to advertise, I find that buyers dislike ads once I control for the increased visibility of ads. This negative effect is amplified for new and unrated freelancers compared to already rated freelancers. Furthermore, I find that new freelancers who advertise do not perform significantly better in the long-run compared to similar freelancers who do not advertise. Taken together, my results contrast the hypotheses derived from signaling models of advertising.

Suggested Citation

  • Jonas Hannane, 2024. "Advertising in Online Labor Markets: A Signal of Freelancer Quality?," Discussion Papers of DIW Berlin 2087, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2087
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    More about this item

    Keywords

    Online Labor Markets; Information Asymmetry; Reputation; Signaling; Informative Advertising;
    All these keywords.

    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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