Unemployment and online labor

In: Discussion paper 18-023

In: Digital economy

Abstract

Online labor markets experienced a rapid growth in recent years. They allow for long-distance transactions and offer workers access to a potentially 'global' pool of labor demand. As such, they bear the potential to act as a substitute for shrinking local income opportunities. Using detailed U.S. data from a large online labor platform for microtasks, we study how local unemployment affects participation and work intensity online. We find that, at the extensive margin, an increase in commuting zone level unemployment is associated with more individuals joining the platform and becoming active in fulfilling tasks. At the intensive margin, our results show that with higher unemployment rates, online labor supply becomes more elastic. These results are driven by a decrease of the reservation wage during standard working hours. Finally, the effects are transient and do not translate to a permanent increase in platform participation by incumbent users. Our findings highlight that many workers consider online labor markets as a substitute to offline work for generating income, especially in periods of low local labor demand. However, the evidence also suggests that, despite their potential to attract workers, online markets for microtasks are currently not viable as a long run alternative for most workers.