23 Mar 2018Working Paper Summaries

Experience Markets: An Application to Outsourcing and Hiring

by Christopher T. Stanton and Catherine Thomas

Online labor platforms are like experience markets. Sellers vary in their fit with individual buyers’ needs while buyers new to the market are uncertain about their own value for what sellers offer. This analysis shows that most potential new employers find the market far less valuable to them than wage differences would suggest.

Author Abstract

New employers in a global online labor market are less likely to hire and, when they do, pay higher hourly wages than employers with market experience. This paper documents significant differences between how inexperienced and experienced employers evaluate job applicants, which alters their demand. There is limited evidence that workers’ costs are higher when applying to an inexperienced employer. New employers enter the market uncertain about their value for it, and experience resolves this uncertainty. The analysis reveals large heterogeneity in employers’ values for offshoring labor services in this market, with implications for market policies to attract new employers.