Private Job Placement Services - a Microeconometric Evaluation for Germany

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06026.pdf Non-technical summaryContracting out of placement services was introduced in Germany in 2002 to make placement services for unemployed individuals more effective and efficient and thereby reduce frictional unemployment. In principle, a system of private providers can lead to better quality and cost efficiency in placement services by allowing flexibility and introducing competition as well as success based compensation. The government remains the financier and has management and policy control over the type and quality of services to be provided. On the basis of contracts between public job centers and private providers, public caseworkers choose unemployed individuals to send to the private providers who, in turn, try to match the individuals with suitable employment. The remuneration paid to the providers depends mainly on their success rate in placement.The empirical part of this paper analyzes the use of this instrument and its effectiveness from the perspective of the unemployed individuals assigned to a private provider for the complete placement activities, i.e. all the activities necessary to place him in a job. The selectivity of the assignments is taken into account in the microeconometric evaluation study that uses propensity score matching to solve the evaluation problem. The plausibility of the identifying conditional independence assumption is discussed. The highly informative administrative data provided by the Federal Employment Agency minimizes selection on unobservables, so the matched control group is a reliable proxy for the unobserved counterfactual. It is argued that unobserved heterogeneity is small enough to get a negligible bias.The estimated effect of the assignment to private providers on the probability of employment is small and negative: 2.3 to 2.6 percentage points after 2 months. The positive effects on the probability of unemployment are even bigger, up to 7 percentage points. The effects are only temporary, vanishing after some months. On average, the private providers were less successful in placing their clients than the public employment offices at the beginning of 2004. This might be explained by deficits in the contract management. The design of the tender allowed providers who combined low quality with a low price to be awarded the contracts. Information mechanisms did not seem to be effective and the incentive effect of the payment was rather small. The results show a positive rela...

What Works for Disadvantaged Unemployed: Private or Public ALMP Services? Evidence from Poland

“…For example, Bernhard and Wolff (2008), using propensity score matching, showed that contracted-out employment services tend to be more effective for particular social groups (e.g., migrants and females over 49 from Western Germany, and people without qualifications and men under 25 from Eastern Germany). Winterhager (2006a;2006b) came to similar conclusions. In Western Germany, only women, older people and those entering the labour market gained an advantage using private companies as ALMP services provider.…”

Effects of contracting out employment services: Evidence from a randomized experiment

“…As noted by Winterhager (2006), if the first stage in a procurement is used to screen for a minimum level of quality, and tenders in the second stage are only selected on the price, there is a considerable risk that firms awarded commission are those that combine a low price with low quality. 10 This was, indeed, not the case in the present setting as both quality and price were explicitly taken into account.…”

Private and Public Placement Services for Hard-to-Place Unemployed

“…For Germany, several nonexperimental evaluations were based on propensity score-matching techniques. They indicated that the placement services of private providers might, at best, be as effective as those produced in-house; Winterhager (2006a, 2006b, 2008) found significant small and negative short-term effects of private placement services on the employment prospects of individuals assigned to a private placement agency during 2004. He attributed these results to deficits in contract management during the time period investigated, when low prices were coupled with low quality.…”