Landing the First Job: The Value of Intermediaries in Online Hiring

Abstract:

Online markets for remote labor services allow workers and firms to contract with each other directly. Despite this, intermediaries have emerged in these markets. This paper shows that intermediaries signal to employers that inexperienced workers affiliated with an intermediary are high quality workers. These intermediaries, called outsourcing agencies, are most prevalent when information about new worker quality is relatively valuable—for workers with skills that are hard for employers to assess and for workers located overseas. Workers affiliated with an agency have substantially higher job-finding probabilities and wages at the beginning of their careers, but this advantage is much reduced if non-affiliated workers receive good public feedback after a successful job. The results indicate that intermediaries are an endogenous response to a market inefficiency where too few inexperienced workers are hired because firms do not capture the full benefits of on-the-job talent discovery.