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The Governance of Public Employment Services

Presentation to RESQ (Reform of Public Employment Services Quorum)

December 2007

David Grubb

Employment Analysis and Policies Division, OECD

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A “baseline case” for public employment service (PES) governance A “rule book” defines procedures for registering jobseeker and

vacancy details and matching (e.g. selecting jobseekers to send to the employer).

Local employment offices are branches of the labour ministry which pays salaries and manages finances; staff are civil servants promoted on seniority and implementation of the rule book.

Larger countries have regional offices which handle some tasks (e.g. purchase and maintenance of buildings) and check the rule book is followed.

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1. Functions and responsibilities

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Placement, benefit administration and labour market programme functions

– Job matching services are usually provided through one main institution, which then is often called “the” PES.

The same “main” institution often also manages:

– Administration of unemployment benefits

– Funding of and /or referral of jobseekers to labour market programmes, e.g. relief jobs and labour market training

OECD reviews of the PES in the 1990s by definition examined the three functions and the activities of any particular national institution. Examples of “integrated” PES with a single ministry or agency responsible for approximately this range of functions, include (or have included) Austria, Germany, Greece, Luxembourg, Japan, Norway, Spain, UK and some Eastern European countries.

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The main institution sometimes also does..

Labour market research and policy advice Enforcement of labour regulations:

– Licensing of private employment agencies

– Administration of work permits

– Employer obligation to notify hires and separations (an instrument for enforcing social security registration)

– Registration of disabled workers and enforcement of quota systems Collection of UI contributions (more or less independent from

other social contributions in DK, FI, FR, KR, JA, SE, US) Administration of non-unemployment beneficiary caseloads

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Caseloads included/excluded PES-type institutions sometimes now administer “non-

employment” working age benefits [NZ (Work and Income), UK (JCP), AU (Centrelink), NL (disability insurance, UWV), NO (rehabilitation benefits)].

However, social assistance beneficiaries managed at regional/local level, (even those required to work) may not be a core client group (e.g. AT, CA, DE, JA, NO, CH). They might be obliged to register with the national placement service while the social assistance administration also provides many services (e.g. DK, FR, LU, NL). This has changed in DE (Hartz IV) and NO (NAV). In the US, UI and welfare (TANF) benefits are both managed at state level yet employment services remain largely separate.

A mong individuals receiving the “regular” unemployed benefit a “not job ready” group may be partly ignored (IE), re-allocated to special programmes (PSP, in AU), given a partial disability status that still requires some availability for work (flex-jobs in DK, reduced capacity in NL).

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Disability benefit shares

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Sickness and disability benefits,

1999, % of working-age population

New Zealand 3.77Spain 4.22Belgium 4.64Austria 5.45Ireland 5.74Australia 6.34Germany 6.59France 6.61United Kingdom 7.22United States 8.43Slovak Republic 8.7Netherlands 10.6Denmark 11.31Sweden 12.22

Countries with a low incidence of sickness and disability benefits may find it difficult to activate all “unemployed” clients.

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MX has no unemployment benefit; the Servicio Nacional de Empleo provides only job matching and training for unemployed/disadvantaged workers but there is no functional split.

In many countries, separate organisations manage unemployment benefits: AU, BE, DK, FI, FR, IE, PT, SE, CH…

– In a few (PT, CH), the placement service can decide directly that a particular client is not available for work and should be struck off or sanctioned.

– In others (AU, BE, IE) the benefit administration has separate powers of investigation and decision. If it tends not to sanction (because the organisations’ objectives differ, or because placement service evidence is not accessible), the placement service tends not to submit cases.

– In others, decision-making bodies with particular governance (DK, ministry availability unit; FI, local committees; FR, Directions Départementales, which are organs of the national ministry) decide about benefit sanctions).

Quasi-autonomous appeal structures, which in principle implement legislation, may influence case law and their governance.

When benefit administration is separate

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When labour market training is separate Take-up of training by the long-term unemployed tends to be low.

However in some countries “trajectories” (Dutch term) for the hard-to-place often foresee remedial/ preparatory education followed by vocational/specific skills training. – The main PES organisation in GR, IE, PT directly manage training

centres which account for a major share of their spending. These centres deliver apprenticeship training but also skills training of the unemployed.

– In other cases (DK, FI, NL, SE) government no longer directly owns training centres as in the past. Training remains important but is sourced from a variety of providers.

– A few countries have a distinct institutional nexus for organising labour market training: AFPA in France, WIA (600+ State and local Workforce Investment Boards) in the US.

– Other countries provide virtually no public funding of vocational/specific skills training for unemployed clients who do not yet have an employer (e.g. Australia only funds New Apprenticeships).

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Which function dominates? In Nordic countries, IE, training and programme implementation

(Community Employment) have had a big weight.

In NL, benefit administrations act directly as purchasers of employment services.

Often the placement service has extensive freedom but focuses on unemployment and related beneficiaries. e.g. because (a) reducing benefit costs is a key justification for its budget (b) only this group can be required to participate in intensive services © its outcomes are easier to track.

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Dysfunctions of integration and separation

Integration

– If an “integrated” employment service has a global budget, in recession it has to cut active spending (critique of German PES highlighted by Schmid, Reissert and Bruche, 1992).

– Little attention may be paid to clients not on unemployment benefits

– If only placement and benefits are integrated, little attention may be paid to training.

Separation

– UI organisations with independent fund-raising (de facto taxation) powers can have high benefit administration costs (DK, FR, NL). NL was reformed 1995-2005 and FR is currently undergoing reform.

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2. “Hierarchical” decentralisation

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Agency status of the PES

PES senior managers, owing to “front line” experience and day-to-day management work, can often manage the PES more competently than labour ministry officials or ministers. This is a key argument for making the PES an agency of government with extensive autonomy.

Typical actions of the PES as a quasi-independent agency include (i) PES director defends its actions in public speeches and parliamentary committees (ii) the PES publishes statements of strategy, takes policy initiatives and conducts experiments.

On the negative side, an autonomous PES may tend to cultivate its popularity with articulate clients (businesses, local communities, executive search..) and prefer not to engage with long-term unemployed and social assistance beneficiaries (e.g. IE, NL 1991-1993).

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Regional and local office autonomy

The locus of power is sometimes largely in regional offices e.g. IE (before 2001), DK. Some countries have given local office managers extensive autonomy e.g. FI, SE.

Typical arguments for autonomy are (i) adapt policy to local conditions and (ii) allow the formation of partnerships at local level (see below).

Arguments against are:

– High levels of autonomy allow radically different procedures e.g. for vacancy handling and jobseeker registration and jobseeker interviews. Performance monitoring based on comparable quantitative indicators becomes impossible.

– The competence of managers at local office level is not consistently high. Autonomy at local level will reflect “random” variation in managerial ideas, more than responses to really different local labour market needs.

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3. Management by social partners,

regional government, local partnerships

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Management by social partners

In some countries the social partners have an advisory role or sit on the board at national level– Inclusion of social partners has a “voice” role.

– The social partners tend to see only one side of the picture, e.g. skill shortages (employers), rights of the unemployed (unions), not the overall management problem.

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Management by regional/local government

In the US, MX, political mastery of the PES is devolved to the States.

In BE, CA, CH, ES, regional governments are masters of placement services (and other ALMPs) while benefits continue to be funded (and managed) at national level. – Regions may refuse to enforce benefit eligibility requirements or

manage ALMPs as “carrousels” (requalify participants for nationally-funded UI benefits) thus generating high unemployment.

– In CA, CH, ES, regions have some disincentive to do this since it does increase entries to (regionally-financed) social assistance. It seems unlikely that a region really benefits by drawing more heavily on nationally-financed UI benefits. Thus Wallonia (BE), and Geneva (CH) have moved partly into line politically.

– But operational barriers to cooperation (e.g. unrelated legal frameworks and computer systems) main remain

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Management by local partnerships

In local partnerships, the local PES coordinates its work with local actors: poverty relief and community care organisations, business start-up agencies, chambers of commerce, municipalities.

The PES may get help from other actors but will also need to contribute to their objectives e.g. local economic development or community services.

Risks– Cooperation may fade, owing to different agendas of the local

actors– Cooperation may channel PES funds to local organisations leaving

a legacy of spending commitments without weak accountability (CE and LES, in IE – Boyle, 2005; subsidies to municipal government employment, FI)

– In prosperous areas, articulate partners may represent the “local establishment” and in depressed areas “community” organisations may not really exist. Often the long-term unemployed, migrant worker communities, etc. will not in fact be well represented.

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4. Information systems

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PES records Functional splits (e.g. placement separation from benefits) and

outsourcing-type partnership arrangements can result in different organisations holding records about the same individual, (e.g. benefit organisations classify claimants by former occupation, placement organisations classify jobseekers by occupation sought – double administrative burden, inconsistent classifications, etc.

Co-operation and coordination agreed by top management often has limited impact until sharing of (electronic) information is streamlined.

Extensive autonomy at local level often results in (approximately) comparable entities e.g. municipalities, UI funds (in Denmark which has multiple UI funds), external providers (in competitive markets) adopting each their own IT system, at huge cost

Even if a common framework exists, autonomous bodies develop different procedures for using it. If database entries are used for performance management the can be “gamed” e.g. classify more jobseekers as “not job ready”, record multiple “placements” for the same individual, multiply the number of interviews recorded at the expense of their duration.

For these reasons, IT systems require major investments, and performance management within the PES may imply ongoing spending on monitoring and auditing procedures.

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Other PES uses of IT

PES are increasingly using tools such as CV depositories, call centres, SMS to jobseekers, on-line career guidance and training, etc. for services to clients.

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5. Quasi-market mechanisms, outsourcing

and“management by objectives”

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Governance of a quasi-market A full quasi-market needs a “common currency” like Australia’s

“star rating” system for rating of provider outcomes according to uniform criteria. Among the key “governance” questions are (EmO 2005)– Definition of the client intake group (e.g. for Job Network, all entries

to unemployment, after an initial filter into the Personal Support Program PSP) and measuring covariates (personal characteristics, local labour market characteristics) used to estimate relative provider impact.

– Procedures for referrals (e.g. random assignment of clients to providers) which also must ensure that (relative) provider impact can be measured.

– The definition and measurement of outcome variables (EmO 2005 suggests measuring employment rates and earnings for 5 yeas after entry, using social insurance contribution records).

– Possibly also the definition of exit procedures (for clients who turn out to need a different type of service).

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Where are functional integration and decentralisation in a quasi-market?

The bullets of the previous slide at first sight represent a very different perspective on PES governance, as compared to “functional integration” and “decentralisation” perspectives.

However with a suitable choice of outcome variable – assessing providers on the basis of their long-term impact on benefit costs and client earnings (and perhaps other life-quality indicators) – quasi-markets will generate approximate the same services as a (well-managed) traditional PES that integrates placement, benefit administration and training functions.

Quasi-market provision ensures a high level of responsiveness to local labour market conditions (a key advantage claimed for decentralisation). As compared to a “decentralised” public PES, staff hiring and contract conditions are much more flexible and the staff profile better matches the ethnic, etc. distribution of the client group. There is also (in Australia) a continuing public “contract management” (field-work supervision) capability - e.g. monitors the integrity of provider data and reports gaps in quasi-market provision.

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Blinkers of quasi-market provision Quasi-market provision (with national measurement of

outcome variables) does not achieve all possible PES objectives e.g. allow local partners to define the local objectives, contribute to upskilling of the employed workforce, etc.– Australian-type quasi-market arrangements only motivate PES

actions that focus on jobseekers– They motivate some vacancy acquisition but not open public

posting of vacancies (Australia now has a separate instrument, job-placement-organisation licensing, to promote this)

– In a remote village, “local economic development” (e.g. investment in public infrastructure that attracts new firms to the area) might be the most effective strategy – a traditional PES might (possibly) extent its remit to this, a quasi-market provision will not.

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Outsourcing This refers to arrangements where providers are contracted to

provide particular services (e.g. Job Clubs, “bilans de compétence”) whose impact on employment outcomes cannot be measured because:– The service represents only a small part of the total service

– “Creaming” or “gaming” of outcomes would not be controlled Purchasers’ impressions of providers’ “reputations” may

generate the right incentives, but “reputations” might be gained through e.g. attractiveness of premises or ability to “cream” clients, rather than real service effectiveness. Outsourcing in practice may result in long-term use of a “preferred provider”.

Poorly-evaluated outsourcing is not necessarily better than poorly-evaluated public provision.

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“Management by objectives” in a traditional PES

PES “Management by objectives” can be interpreted as a “soft approximation” to ideal “quasi-market” governance arrangements. Key limitations are:– It is not possible (owing to limitations on the sources of

variation) to accurately determine whether one local PES outperforms another, in terms of impact on client employment/unemployment outcomes (albeit CH claims its estimates do this).

– Management by objectives uses intermediate indicators (e.g. placements of the long-term unemployed), soft targets (e.g. this year’s “target” is last year’s outcome plus 5%)

– (Usually) good/bad performance against target is interpreted in a judgmental way and does not result directly in any action.

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“Rigidity” in PES staffing Efficient provision of employment services requires long-term

investment in human and other capital. An offer of de facto lifetime employment to skilled professionals and managers may well be a sound business strategy.

Central management may typically be aware that some PES local office managers (for example) perform better than others, yet not to take any action. The availability of accurate performance measures might not change the situation.

Under outsourcing, providers may lobby for and obtain contract durations and guarantees that limit short-term flexibility.