Privatization of Placement Services in Light of the TLM Approach

Venice, 10 April 2008

Petra Kaps & Holger Schütz

Wissenschaftszentrum Berlinfür Sozialforschung

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• Preconditions for Functional Quasi-Markets

• TLM - evaluation criteria

• Privatized Placement Services in Germany

• Competitive Tendering of Placement Services:

a comparison of 4 countries

• Conclusion

Contents

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• open market structure• incentives for efficient and quality-ensuring pricing

mechanisms• freedom of clients’ choice to promote competition• clear separation of principal and agent• maximum transparency of tendering procedures,

contracts and evaluation criteria• Low transaction costs• balancing motivation and interests of service

providers, the contracting authority and the customer• high-quality monitoring of provider performance

Preconditions for Functional Quasi-Markets

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• Productive efficiency through competition on

markets

• Responsiveness through freedom of choice

• Equality of individual opportunities through

incentive structure

(according to Le Grand/Bartlett 1993)

Quasi-Markets – evaluation criteria

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• Justice as fairness /equality of opportunities

• Individual autonomy/empowerment

• Solidarity in risk-sharing

• Effectiveness through cooperation and

functional specialization

• Efficiency through management by objectives

(according to Schmid 2002)

TLM – evaluation criteria

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

Introduction of Quasi-Markets

Contracting Out:• commissioning the provision of services

(various kinds of placement service for unemployed persons to private agencies, § 37 Social Code III - with a right to use private support after 6 months on UB I, but without choice between agencies)

• integration measures (for groups of unemployed needing intensive support for placement into the labour market provided by private profit or non-profit contractors, § 421i Social Code III – with no right)

Voucher-System:• placement vouchers

(right to use it for unemployed persons after 6 weeks on UB I, § 421g Social Code III)

The German case I

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

Impact analysis (2003-2005)

• In sum, poor integration rates and no net effect of the two instruments which are contracted out

• for 2005, placement vouchers show small positive gross and net effect for short-term unemployed, but there are windfall profits of at least the same degree

The German case II

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

Implementation analysis: Contracting Out

• Only limited room for private employment agencies to select participants; and no options for participants to choose between different providers as PES allocates them to the service providers

• conflicts between public employment agencies and private service providers about what placements are to be recognised and paid for

• lack of monitoring tools permitting easy supervision of private agencies

The German case III

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

Implementation analysis: Vouchers

• Licenses for market access easy obtainable, keeps transaction-costs low but produces quality problems

• Fixed prices means no market price formation• Strong social selection effects (creaming) • Incentives for deadweight persist• Quality assurance lies with professional

federations, but quality problems remain unresolved

• Transparency and monitoring of providers and market structure is not guaranteed yet

The German case IV

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

Results in light of the TLM-Approach

The German case V

Evaluation criteria Contracting Out Voucher

Individual autonomy/empowerment

No: very limited right to use,

no choice of agents

Yes: right to use, but only for a limited group (> 6 weeks on UB I)

Choice but intransparent quality of services

Justice as fairness/ intervention in favour of the disadvantaged

No: parking and creaming

long term unemployed are not entitled to services

No: parking and creaming/ long term unemployed are are not entitled to services

Solidarity in risk-sharing No/Yes: No cure no pay/no cure less pay

No: no cure no pay

Effectiveness through specialized agents in coordinated competition and partnership

Yes: specialized agents

No: partly coordinated competition, but no partnership

Yes: specialized agents

No: un-coordinated competition, no partnership

Efficiency through management by objectives

Low level of controlling,

No benchmarking or manage-ment by outcome objectives

No controlling, benchmarking or manage-ment by objectives

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• Tendering systems extremely complex, low risk sharing and in need for permanent re-regulation

• Initially strong reliance on market prices results in races to the bottom and deteriorating quality

• Strong price competition favours creaming and parking of the most disadvantaged groups as well as other forms of moral hazard by private providers

• Empowerment is not a central goal, choice is restricted

• Different degrees of coordination and competition among countries

• No clear positive net impact/increased effectiveness

Competitive Tendering of Placement Services: Germany, Australia, Britain and the Netherlands

International comparison

CAP-TLM Workshop, Venice, 10.-11-04.2008 Petra Kaps, Holger Schütz

• Tenders provide no incentives for needs-oriented services

• Competitive tendering by commissioned agency is unresponsive to local needs and prone to centralization

• Management by outcome objectives needed• Full decentralization brings about not only market

competition, but also uneven services standardsand regional fragmentation

• New forms of cooperation and PPP needed

Alternative public-private-mixesfor placement services

Conclusion