Third-Party Skill Certification in Online Labor Markets

Third-party skill certification is widely used in many markets, online and offline, to address the ubiquitous information asymmetry between workers and employers. In online labor markets, however, the usefulness of third-party certification is not yet fully established in that some leading platforms tout its effectiveness whereas others abandon it altogether. It is unclear whether such certifications exert a meaningful influence on the recruitment decisions of employers (i.e., buyers) and whether they reveal the quality of employees (i.e., workers). In addition, there is no ex-ante theoretical consensus about whether certification attempts should be offered free of charge. Using a comprehensive dataset from one of the largest online labor markets, we first study whether certifications are desirable for employers when they make recruitment decisions. We then examine whether certifications actually do reflect worker quality (therefore serving as a valid economic signal) by examining their ex-post performance after being hired. We further examine how zero-cost certification tests affect the above relationships by exploiting data surrounding a policy change on the platform. Our findings show that employers do prefer workers with certifications over those without, and justifiably so: Workers with certifications do outperform those without certifications. Certifications are especially helpful for new workers in obtaining jobs, especially workers who have not yet accumulated ratings. Contrary to some theoretical arguments, offering certification tests free of charge actually reduces the signaling value of certifications: It negatively affects employers’ preference for certified workers.