All That Glitters Is Not Gold: The Impact of Certification Costs In Online Labor Markets

Posted: 24 Oct 2012 Last revised: 9 Jan 2024

See all articles by Jiaru Bai

Jiaru Bai

Stony Brook University

Qiang Gao

Zicklin School of Business, City University of New York

Paulo Goes

University of Arizona - Department of Management Information Systems

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology

Date Written: May 1, 2023

Abstract

Third-party skill certification is widely used to address the ubiquitous information asymmetry between workers and employers. When more workers attempt certification exams, the market should become more transparent, and the reduced information asymmetry should enable more transactions to occur. A natural way to encourage workers to take certification exams is to make the certification tests free. However, neither theoretical nor empirical studies have examined how the decision to offer free tests influences this emerging marketplace. This research fills this gap. First, we develop a stylized model to hypothesize the possible effects of zero-cost certification tests on the recruitment decisions of employers and their transaction amounts (i.e., contract prices) with workers at both job and platform levels. Second, we empirically test these hypotheses by exploiting a natural experiment that occurred when one of the largest online labor markets unexpectedly removed its certification test fees. Contrary to the platform's expectations, the offering of free certification tests reduced the signaling value of the certifications: Employers' preference for certified workers decreased (both in terms of hiring likelihood and price paid). More importantly, such preference change appeared economically justified, as workers certified under the new policy are less likely to deliver high-quality work. Furthermore, the fall in signaling value is particularly high for inexperienced workers who are still in the process of accruing reviews and are thus more dependent on certifications to secure work. The findings remained consistent over the longer term during our study period. Our results provide strong support for the study’s theoretical propositions and have important implications for platforms and practitioners in online labor markets.

Keywords: Certification Test Cost, Online Labor Market, Contract Rates and Price, Service Quality

Suggested Citation

Bai, Jiaru and Gao, Qiang and Goes, Paulo and Lin, Mingfeng, All That Glitters Is Not Gold: The Impact of Certification Costs In Online Labor Markets (May 1, 2023). NET Institute Working Paper No. 12-02, Available at SSRN: https://ssrn.com/abstract=2163760 or http://dx.doi.org/10.2139/ssrn.2163760

Jiaru Bai

Stony Brook University ( email )

NY
United States

Qiang Gao

Zicklin School of Business, City University of New York ( email )

17 Lexington Avenue
New York, NY 10010
United States
6463123192 (Phone)
6463123192 (Fax)

Paulo Goes

University of Arizona - Department of Management Information Systems ( email )

AZ
United States

Mingfeng Lin (Contact Author)

Scheller College of Business, Georgia Institute of Technology ( email )

United States

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