Implications of Algorithmic Wage Setting on Online Labor Platforms: a Simulation-Based Analysis∗

20 Pages Posted: 3 Apr 2023

See all articles by Herbert Dawid

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics

Michael Neugart

Technical University of Darmstadt

Date Written: March 2023

Abstract

We study how the use of machine-learning based algorithms for the determination of wage offers affects workers’ wages on online labor platforms. Firms use reinforcement-learning to update posted wages on the platform, and heterogeneous workers send applications based on the posted information. We show that if firms use a deep Q-network (DQN), as an example of a state-of-the-art machine learning algorithm, the emerging wages closely resemble the equilibrium outcome. However, slightly changing the setup of the algorithms can lead to substantial collusion and wages well below the equilibrium level. In particular, we identify a specific property of the algorithms, namely whether experience replay is used, which determines whether collusion occurs or not. Our findings are robust with respect to many features of the model, including the design of the online labor platform.

Keywords: online digital labor platforms, duopsony, deep Q-network, experience replay, wages

Suggested Citation

Dawid, Herbert and Harting, Philipp and Neugart, Michael, Implications of Algorithmic Wage Setting on Online Labor Platforms: a Simulation-Based Analysis∗ (March 2023). Bielefeld Working Papers in Economics and Management No. No. 02-2023, Available at SSRN: https://ssrn.com/abstract=4405558 or http://dx.doi.org/10.2139/ssrn.4405558

Herbert Dawid (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics ( email )

Universitätsstraße 25
Bielefeld, 33615
Germany

Michael Neugart

Technical University of Darmstadt ( email )

Hochschulstraße 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

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