The Cost of A Rating: Economic Impact on Pakistan's Freelancers
Abstract
Pakistan's gig economy was worth 300 million dollars in 2024 and a workforce of 2.9 percent (10.6 percent secondary workforce according to the 202425 Labor Force Survey) has reshaped the urban markets in the country with its application of Byker and Careem. The rating systems (1 5 stars) transform the reputation of the workers into a kind of non-monetary human capital, similar to that of Becker (1962) of the company-specific investments, which provides the individual bargaining power and punishes the collective action. The authors utilize a new panel data set on ride-hailing and delivery drivers in Lahore, Karachi, and Faisalabad (n = 5,247, total n = 272,844 driver-weeks, 2024-2025) to investigate two hypotheses: (H1) Ratings will be positively related to wages; and (H2) Ratings will negatively affect the probability of participating in a strike.
Two-way fixed-effects regressions indicate that a 1-point increase in ratings will raises logged hourly wages by 11.8% (SE=0.014, p <0.01), which equivalent to PKR 112/hour at the mean (PKR 950) and reduces the probability of strike by 16.2 percentage points (SE=0.085, p <0.05). These effects are doubled with instrumental variables estimates with exogenous app glitches (wage 0.236 p<0.05) which attests to causality. Gender access barriers indicate higher wage gains of males (14.2) than females (9.2) due to heterogeneity. These mechanisms are algorithmic allocation of gigs (mediates 45% wage effects) and high costs to strike opportunity (62% through lost assignments).
With Careem leaving the market and frequent demonstrations over commissions and fuel subsidies, the results indicate that reputation has a two-sided nature: on the one hand, it enables high-raters (e.g., PKR 1,070/hour in 2025 increases) but on the other hand, it leads to platform lock-in that atomizes labor. Propensity matching checks robustness, quantile regressions, GMM, falsifications uphold results. Whereas the policy implications of this study are that there should be the ability for workers on platforms such as Uber or Careem to take their reputations with them (through methods such as block chain-based credentialing systems). There also needs to be gig specific labor legislation created and implemented (for example the proposed 2025 Gig Worker's Protection Act) so that all gig workers across platforms will have greater bargaining power when dealing with weak regulation.
