Digital Economy, Digital Labour

Digital labour platforms as winner-takes-all markets: implications for fair work standards

A number of contributions in the DIODE blog series have focused on how digital labour platforms such as Upwork and Freelancer provide new economic opportunities for online freelancers, particularly in the Global South. Subsequently, relevant questions have been raised on the precarious nature of digital gig work (see e.g. blogs by Balaji Parthasarathy, August 2018; Richard Heeks, July 2018; Mark Graham, December 2017), and how the regulatory framework for platforms can be strengthened to guarantee ‘fair work’ principles for those active on digital platforms. Initiatives towards third-party monitoring and certification in this field, and how decent work standards can be met, are interesting and should receive broad-based support. However, through the very nature of their functioning, digital labour platforms will always be plagued by a level of unfairness, which will be discussed in this blog-post.

One central but largely unexplored topic in the literature on digital labour is what it takes to be successful on digital labour platforms. As its central features, the competition for work is global, employment relations are flexible, and individuals rely on reviews and performance scores for securing new jobs. In practice, financial gains on digital labour platforms are highly uneven with a small number of freelancers securing the majority of the jobs. In management circles this would be regarded as the 80/20 rule (pareto principle), which in this case refers to the situation that 80 percent of the work is likely done by only 20 percent of the freelancers that are registered on the platform. In a similar vein, digital labour platforms are a typical example of a winner-takes-all market. The concept winner-takes-all markets was originally developed by Frank and Cook (1995, 2013) to highlight the emergence of top-earners in particular professions such as sports, music or other creative professions. In the digital economy the winner-takes-all principle can be identified at two levels: the digital platform industry at large, where platforms such as Facebook, Uber, Amazon.com and Upwork currently dominate their market niches, and for those working via platforms. Formal entry barriers to digital labour platforms are low, which means that anyone literate with a computer and access to the Internet can sign up. However, successful participation in digital labour platforms is a complex game because of the diversity of actors involved.

Whereas in local or national labour markets most buyers and sellers of labour share common grounds in terms of cultural background, education, and their understanding of what represent good work skills, work ethics and decent pay, this is not true on global digital labour platforms. Here, clients posting a job are likely to be presented with freelancers that are based, raised and educated somewhere half a world away in a profoundly different socio-cultural and educational context than the client’s. This creates an assessment challenge for clients, and adds a measure of uncertainty to hiring transactions. An additional measure of uncertainty is created by the digital nature of the working relation between clients and contractors. With clients and contractors at a distance and chances of them ever meeting in person being slim, the embedded relations and social monitoring and sanctioning mechanisms that encourage people to perform well and live up to their promises in offline working environments carry less weight, making it easier for either freelancers or clients to disengage or otherwise fail their counterparts. Under such conditions, contractors with good credentials (or a good digital reputation) are more likely to make it to the shortlists of clients looking for someone to hire. They are also more likely to be rehired and be able to secure higher wages for their ‘proven’ trustworthiness.

Skills-tests via digital labour platforms are the most obvious way for new entrants to show their capacity and to reduce uncertainty of clients. Surprisingly, Upwork (the largest global platform for digital work) announced in July 2019 that it will remove the various skills tests on offer via the platform, as clients didn’t find skills tests important when making hiring decisions. Rather, according to Upwork, clients consider profile introductions, portfolios, and job feedback a better showcase of a freelancer’s skills and experience. This shows the very nature through which digital labour platforms evolve for freelancers into winner-takes-all markets as it favours the more established freelancers with good credentials (for example a high performance rating and positive feedback). When client-generated feedback constitutes an important part of contractor credentials and is used by clients to (largely) base their hiring decisions upon, it favours contractors who have already received good feedback and it puts newcomers that have not yet had their chance to accumulate good feedback and build a digital reputation at a disadvantage. Such effects are likely to be more pronounced if clients in their assessment of potential contractors, have a strong interest in qualities that can be demonstrated only ‘on the job’ and not easily upfront. This increases clients’ reliance on the feedback received by contractors from other clients, and thus reinforces the importance of the feedback loop. This makes the platforms prone to exclusionary effects (in addition to distribution effects) as newcomers will have a hard time establishing a foothold in the market.

To conclude, the greatest contradiction of digital labour platforms is that success is very visible (e.g. through information on profile pages of freelancers) and newcomers are often lured to join (see blog by Niels Beerepoot, September 2017) but securing a position in this market is a major challenge. New entrants need to overcome barriers of uncertainty and lack of a digital reputation. These particularities in the functioning of digital labour platforms are hard to integrate when defining fair work standards but to a large extent determine how freelancers perceive digital gig work. Fair work standards are now oriented towards those who have acquired a seat at the table where joining the table is the hardest task.

Frank, R. & P. Cook (1995). The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us. New York: Martin Kessler Books
Frank, R. & P. Cook (2013) Winner-Take-All Markets. Studies in Microeconomics Vol. 1 (2): 131-154.Digital Labour, Digital Platforms

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