The Profitability Puzzle of Digital Labor Platforms

Abstract

By examining digital labor platforms that connect customers with gig workers, we attempt to solve the puzzle concerning why these labor platforms, such as ride-hailing companies and food delivery companies, continue to suffer weak profitability even though they promise a more efficient way to mobilize and utilize the platform’s labor force. Stylized facts on the profitability of the top ten global labor platforms and a descriptive analysis of their cost structures are presented. We further argue that the modes of production and competition inherent in digital labor platforms are critical to this profitability puzzle because they determine the upper limit of surplus value extraction in production and the heavy financial burden of profit generation for labor platforms. JEL Classification: P12, E24, D40