Surviving in Global Online Labor Markets for IT Services: A Geo-Economic Analysis

Abstract

Global online labor markets (OLM) lower the barriers to entry and enable global competition for IT services from providers around the world. Although the prior OLM literature predominantly found systematic advantages for IT service providers from developed countries due to their higher perceived quality, the reality is that most service providers in OLM are from developing countries. This phenomenon requires a robust anal- ysis of how OLMs are evolving. In this study, we conduct a geo-economic analysis on IT service providers’ survival utilizing a unique longitudinal panel data set comprising 40,874 IT service providers from different countries over a period of more than four years (2006 to 2010). Based on results from Survival models and a series of robustness checks, we were able to decipher how geo-economic factors (specifically the country development level) and reputation interact to determine service providers’ survival. Our findings provide a different perspective from the prior literature on OLM by showing a systematic advantage for IT service providers from developing countries in terms of survival, especially when providers from developing countries were able to signal their individual quality through reputation. We explain and discuss the mechanisms underlying these effects, and highlight implications for OLMs for IT services.

Keywords: Online Labor Markets, Survival, Wage Growth

JEL Classification: C41, D90, J30, J44