Two to Tango? Psychological Contract Breach in Online Labor Markets

45 Pages Posted: 15 Jan 2021

See all articles by Jörg Claussen

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Copenhagen Business School - Department of Innovation and Organizational Economics

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR)

Pooyan Khashabi

ESSEC Business School

Mareike Seifried

ZEW – Leibniz Centre for European Economic Research; Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Date Written: 2020

Abstract

Despite some advantages over traditional (offline) labor markets – such as lower search costs, better matching and improved monitoring – online labor markets (OLMs) have not taken off as initially expected. In this paper, we study the factors that limit perceived project success on OLMs. Using psychological contract theory, we theorize how common OLM features including contracts with virtual monitoring, multi-freelancer projects, and simultaneous projects by a client trigger the perception of psychological contract breach among OLM participants and reduce perceived project success for both participants. We test these hypotheses using an extensive dataset with more than 143,000 transactions on the world’s largest freelancing platform, Upwork, and find that – contrary to predictions from agency theory – projects equipped with strict freelancer monitoring (hourly-pay contracts) and projects enabling peer comparison (multi-freelancer projects or multiple simultaneous projects), lead to lower perceived project success both from the freelancer’s and the client’s perspective. Our work implies that transactions on online labor markets should not be viewed solely as agency relations, and that some features that supposedly reduce agency costs and improve efficiency on OLMs come at the cost of triggering the perception of psychological contract breach.

Keywords: Online labor markets, gig economy, outsourcing, psychological contract theory,platforms, knowledge work

JEL Classification: L14, L24, J44

Suggested Citation

Claussen, Jörg and Kretschmer, Tobias and Khashabi, Pooyan and Seifried, Mareike, Two to Tango? Psychological Contract Breach in Online Labor Markets (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-078, Available at SSRN: https://ssrn.com/abstract=3766029 or http://dx.doi.org/10.2139/ssrn.3766029

Jörg Claussen (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pooyan Khashabi

ESSEC Business School ( email )

1 Avenue Bernard Hirsch
Cergy, 50105
France

Mareike Seifried

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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