Diversify or Specialize? Demand-Reputation Trade-Offs and Career Paths in Online Labor Markets

Abstract

In online labor markets (e.g., Upwork, Freelancer), contractors' ability to charge for their services largely depends on their skills and expertise. Because new skills emerge and old skills become obsolete faster than ever, contractors must be diligently re-educating and reskilling themselves. When contractors learn new skills, they alter the degree of diversification of their skillsets: new contextually similar skills increase specialization, while new contextually distant skills increase diversification. But how do skillset specialization and diversification affect contractors' market value in digital workplaces for short-term work? To investigate, we argue that new skill acquisition affects contractor market value by adjusting the contractor's perceived reputation on the new skills and by creating new job opportunities. By combining prior work on individual-level exploration-exploitation with research on contractor behavior in online labor markets, we theorize that compared with a new specialized skillset, a new diversified skillset will experience reputation losses and opportunity gains. If reputation losses are greater than opportunity gains, increasing diversification will result in lower market value than increasing specialization. However, if opportunity gains overcompensate for reputation losses, increasing diversification will result in higher market value than increasing specialization. Empirically, we measure a contractor's market value through hourly wages and hiring rates and a skillset's diversification through a new approach grounded on word embeddings. Analyses of a panel dataset of 47,638 completed tasks from a major online labor market highlight the trade-offs of increasing diversification: for hourly wages, opportunity gains are stronger than reputation losses; hence, all else being equal, increasing diversification leads to higher wages. However, for hiring rates, the opposite is true. As a result, increasing diversification decreases contractor hireability. As the first study to explain the effects of skillset diversification in digital workplaces, our work allows contractors to make better-informed decisions and guides managerial interventions.