Expenditures on job placement and related services make up a substantial share of many countries’ GDP. Contracting out to private providers is often proposed as a more efficient alternative to the state provision of placement services. However, the responsible state agency has to design and monitor sufficiently complete contracts to ensure that the private contractors deliver the desired quality of services. None of the recent empirical evidence indicates that contracting out is necessarily more effective or more efficient than public employment services.
From a theoretical point of view, contracting out job placement services opens this market up to competition, which might decrease costs compared to the public delivery of such services.
With well-designed contractual arrangements and performance measurement, contracting out might be able to improve job placement, at least for certain population groups.
Contracting out allows the state to expand or reduce service capacity and to hire specialists for particular target groups while avoiding the long-term commitments that are often found in the public sector.
For the responsible state agency, ensuring the quality of private employment services puts great demands on contract design and monitoring systems, and a successful contracting out process is by no means guaranteed.
Many public employment services have replaced bureaucratic input-based structures with output-oriented performance management in an effort to increase their efficiency.
Rigorous empirical studies for several countries indicate that the public provision of placement services performed equally well or even better than the private provision of such services.