Wissenschaftszentrum Berlin für Sozialforschung

1. Wissenschaftszentrum Berlin für Sozialforschung Privatization of Placement Services in Light of the TLM ApproachVenice, 10 April 2008Petra Kaps & Holger Schütz

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. The German case V Results in light of the TLM-Approach

11. 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 International comparison Competitive Tendering of Placement Services: Germany, Australia, Britain and the Netherlands

12. 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 Conclusion Alternative public-private-mixesfor placement services