Local economic conditions and worker participation in the online gig economy

Online gig economy platforms maintain low barriers to entry, and they enable flexible working arrangements, allowing individuals to work in an ad-hoc fashion, wherever and whenever they desire. Therefore, online labor platforms could absorb negative employment shocks in the traditional offline local labor market. However, as the bulk of workers in the gig economy treat it as a temporary source of employment, these individuals may scale back their participation as they focus on identifying a new position. Leveraging data from a leading online labor platform, and statistics on unemployment rates and mass layoff events from the Bureau of Labor Statistics, we use a difference-in-differences framework to estimate the effect of longitudinal state-level variation in unemployment, attributable to the 2008 financial crisis, on the supply of online labor at Freelancer. Our estimates show that a 1% change in unemployment around the financial crisis leads to an approximate 6.4% increase in the volume of new workers registering at Freelancer, an 8% increase in the total number of active workers, and a 12.1% increase in the number of submitted project bids. We then consider an alternative identification, examining the impact of mass layoff events, by industry and location, on the supply of online labor residing in the same location. We demonstrate a positive effect from mass layoff events in IT-related industries, yet no effect from mass layoffs in non-IT industries, primarily because most online labor platforms cater to IT-related projects that are easily outsourced and delivered via the Internet.