Abstract
The rise of online freelancing platforms offers a promising avenue to reduce youth unemployment in low- and lower-middle-income countries by addressing typical constraints such as limited job opportunities, high search costs, and information frictions. Yet, unemployment remains high in these markets, particularly among inexperienced workers. While economic theory suggests that inexperienced workers can bid down wages to clear the market, wage undercutting is rare. This project explores the hypothesis that freelancers may choose not to engage in undercutting because proposed wages act as signals of unobserved quality. To understand wage-setting in online labor markets, we combine two RCTs to answer: 1) how signaling concerns and uncertainty about own skills affect wage-setting decisions of inexperienced online freelancers; and 2) how employers’ demand and beliefs about worker quality respond to wage undercutting.