More Less
More Less
June 05, 2017

Public versus private job placement services

Opinion image

In many welfare states, the provision of placement services for job seekers has been an important task for public employment services. Since the end of the last millennium, government provision of such services has come under increasing criticism for a presumed lack of efficiency. Thus, many countries have chosen to contract out at least part of their placement services to private providers. With contracting-out, a state agency specifies the tasks to be performed by private firms. Competition for entry into the market is achieved by means of a bidding process among potential service providers. One or more providers wins the right to supply a set of services, while a state agency maintains some control over activities.

Australia has adopted the most extensive approach, tendering out placement services for all unemployed persons since 1998. Other prominent examples are Great Britain and the Netherlands, which started to contract out portions of their placement services at the beginning of this century. Meanwhile, many countries supplement public placement services with private services. 

From a theoretical point of view, contracting out job placement services opens up the market for placement services to competition. With well-designed contractual arrangements and performance measurement, contracting-out might be able to improve job placement and to decrease costs compared to the public delivery of such services. However, ensuring the quality of private employment services puts great demands on the responsible state agency’s contract design and monitoring systems. A successful contracting-out process is by no means guaranteed. 

Thus, the relative benefits must be investigated to determine the real-world consequences of job placement privatization. Randomized controlled trials that assign individuals to either public or private services are the gold standard of evaluation methods and ensure—if well designed—that both groups are composed of truly comparable individuals. The few available randomized controlled trials that compare private and public placement service delivery methods were conducted in Denmark, Germany, France, Sweden, and the American state of Michigan; most of them focused on particular groups of workers. They indicate that job placement by the public employment service is neither less effective nor less cost-efficient than services provided by private placement agencies. In fact, some of them even indicate that public provision had been both more effective and more efficient than the private alternatives existing in these jurisdictions. 

Of course, each country has unique circumstances that must be taken into account when designing subcontracting protocols and determining an optimal mix of public and private placement services. However, available evidence suggests that countries should assess the effectiveness and efficiency of the desired program by conducting a pilot study before introducing a large-scale contracting-out program. Ideally, this would be done using a randomized controlled trial accompanied by a qualitative implementation study, which would allow policymakers to adjust the program as soon as problems with its contract design or placement management become obvious.

Related articles:
Public or private job placement services—Are private ones more effective?, by Gesine Stephan

Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.