Making Gig Work Work: What Drives Project Success Online?

It sometimes seems like technology is changing by the day - and embracing these changes is key for success in a changing economic landscape. Not all change is wrinkle-free, however, as we can see with the case of the online gig economy. On the face of it, shifting the gig economy online and setting up online labor platforms for freelancers to offer their services was a win-win: more flexibility and independence for workers, and more options and reduced costs for firms. As these platforms have become widespread, however, the growth of gig work has not kept up as expected. ESSEC professor of management Pooyan Khashabi, alongside Mareike Seifried (ZEW), Tobias Kretschmer (LMU), and Jörg Claussen (LMU) explore this phenomenon in a recent article published in Industry and Innovation, identifying factors that drive project success in online labour markets.

Progress, not perfection?

We tend to think of technological advances as a good thing, making our lives easier and processes smoother. The rise of AI, and the associated ethical challenges, have made it clear it’s a bit more complicated than that - and indeed, it is already established that innovation can have unintended negative consequences and cause challenges. In the case of online labor markets, which outsource tasks previously done by company employees, clients can easily engage the services of a freelancer, who is often based in an entirely different area and completes their work entirely online. Freelancers can also advertise their services to different potential clients, and work for multiple clients at the same time.

On the surface, everybody wins. But challenges arise when you notice that these gig workers sit in a gray area: they aren’t employees, yet they don’t exactly operate like independent contractors either. All this means that the client and the freelancer may have totally different views of their psychological contract: the intangible perceptions and obligations between employer and worker. Their situation is ambiguous, an ambiguity amplified by the virtual and novel nature of these platforms.

Analyzing the work

Research studying work transactions has typically used an “agency perspective” to understand these interactions, meaning a client hires an agent (known as a freelancer) for a specified task. In this framework, satisfaction on both sides is expected to increase with greater task certainty and information, and more evaluation and monitoring should raise satisfaction—at least for the client. However, researchers found that this framework might not be fully suited to study online labor markets. For instance, despite what agency theory predicts, increased monitoring and evaluations led to dissatisfaction on both sides.

The researchers instead applied a psychological contract lens to study online labor markets. In these settings, the traditional employer–worker dyad is expanded by a third party: the platform. As a result, expectations about appropriate behavior become more ambiguous and complex. Combined with the unclear legal status of workers, social norms are blurred—creating a situation ripe for psychological contract breaches. These occur when either side feels frustrated or disappointed because the other has not lived up to perceived obligations.

Freelancers often view the company as their employer and expect the client to support them in that role while still respecting their autonomy. Clients, in contrast, tend to see freelancers more as external resources than as employees. They feel little commitment, invest less in the relationship, and switch easily to someone offering a better rate. These conflicting expectations often surface in the satisfaction ratings each party leaves after a project is completed.

To empirically study the dynamics in the online gig economy, the researchers used Upwork, the world’s largest online labor platform, to construct a dataset composed of over 143k gig transactions. The final dataset included over 49k freelancers and over 76k clients. Possible tasks on Upwork range widely, from writing to IT to legal to web development and much more. The online platforms also enable the use of technology to monitor work and introduce peer comparisons. Clients can enable a virtual monitoring system, called a ‘Work Diary’, which records keystrokes and takes six screenshots per hour when freelancers use the Upwork desktop app to log their time. Once the freelancer has completed the project, both freelancer and client rate their perception of the project success from 1 to 5.

The researchers analyzed the success of the project as perceived by both the client and the freelancer. While the scores on both ends trended high, this came with a catch:

Projects with multiple freelancers at the same time were rated less successful by the freelancer and by the client. This is likely as the ability to compare their performance can lead to negative outcomes, putting pressure on each individual freelancer as they may see their fellow freelancers as competition. The client results could be linked to the pressures associated with increased monitoring and inadvertently alienating freelancers, causing a chain reaction.
If freelancers had a past good experience with the client, they tended to feel like the project was more successful, and vice versa.
On projects requiring a broader set of skills, these heightened expectations led both freelancers and clients to perceive the project as less successful. A client explained, “What I‘ve found out is that the larger the project and the longer it is,the more can go wrong in that time. Now I break it down into small chunks and I tend to give each of those chunks to a specialist.”
Projects that were paid by the hour, rather than for the project as a whole, were rated less successfully by the clients, perhaps due to the higher level of oversight from the Work Diary and the fact that this level of oversight requires more work from the client as well.

The makings of success

Put differently, the standard agency framework may not fully apply. The researchers show that examining the consequences of these novel settings—and how they shape success—helps build a better understanding of the challenges introduced by new technologies.
Managers can use the results of these analyses to boost success and satisfaction in their projects by establishing expectations from the beginning.
More work and legislation is needed to clarify the legal status of gig workers, as this clarification could help client and worker satisfaction.

The online gig economy isn’t going away anytime soon - making research like this study crucial to develop a strong understanding of the dynamics involved and foster positive working conditions.

Pooyan Khashabi has been funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Commission. Neither the European Union nor the granting authority can be held responsible for them.

Reference

Seifried, M., Kretschmer, T., Khashabi, P., & Claussen, J. (2024). What drives project success in online labour markets? A bilateral perspective on freelancers and clients. Industry and Innovation, 31(1), 75-104.