Surviving and Thriving in the Online Labor Markets: A Geoeconomic Analysis

Abstract

Online labor markets (OLM) lower the barriers of entry and enable global competition for IT service providers around the world. Although the prior OLM literature posits systematic advantages to IT service providers from developed countries, most providers in OLM are from developing countries. The jobs are flowing to the developing countries, while the employers remain in the developed countries. This emerging evidence requires fresh analysis to understand how OLMs are evolving. In this study, we conduct a geoeconomic analysis on IT service providers’ survival and wage growth, utilizing a unique longitudinal panel data set comprising 40,874 IT service providers from 150 different countries over a period of more than four years (2006 to 2010). Using Survival and Growth models, we uncover systematic advantages for IT service providers from developing countries in both survival and wage growth. We are also able to decipher trends in how these effects evolve over time as the marketplace matures. Contrary to prior literature on OLM reporting systematic advantages for IT service providers from developed countries in landing contracts, we found a systematic advantage for IT service providers from developing countries in terms of both survival and wage growth, especially when they were able to signal their individual quality. We explain and discuss the mechanisms underlying these effects, and highlight implications for online labor markets for IT services.