Unclear Signals, Uncertain Prospects: The Labor Market Consequences of Freelancing in the New Economy

The advent of various types of contingent jobs complicates selection criteria for full-time employment. While previous studies analyzed the penalties associated with other forms of contingent work, the labor market consequences of freelancing have been overlooked. I argue that freelancing works have features of both “good” and “bad” jobs, transcend the demarcation between “primary” and “secondary” sectors implied by segmentation theorists, and thus embed uncertainty around their categorization and meaning. Drawing on the “signal clarity” concept from management scholarship, I extend existing sociological works on employer perceptions of candidates by proposing a model to theorize how a history of freelancing affects workers’ prospects at the hiring stage. I present results from two interrelated studies. First, I use a field experiment that involves submitting nearly 12,000 fictitious resumes to analyze the causal effect of a freelancing work history on the likelihood of getting callbacks. The experiment reveals that freelancing decreases workers’ odds of securing full-time employment by about 30 percent. Second, I use data from 42 in-depth interviews with hiring officers to illustrate two mechanisms that could account for that observed effect. Interview data demonstrate that freelancing sends decidedly unclear competence signals: employers are hesitant to hire freelancers not because these candidates lack skills but because verifying these skills is difficult. Freelancing also sends clearer and negative commitment signals. This study sheds new lights on labor market segmentation theory and deepens our understanding of how nonstandard work operates as a vehicle for inequality in the new economy.