When the Job Network began operating in May 1998, replacing the former
Commonwealth Employment Service and contracted-out case management
agencies, it was variously described as a 'radical experiment' and a
'revolution in employment services'. Now four and a half years old, this
quasi-market in employment services is to undergo another transformation
to fit the new 'Active Participation Model', itself devised to reflect
what has been learned about the Network's successes and failures over the
past four years.
Until recently there has not been much detailed information available
about the workings of the Job Network and it is still the case that
independent researchers are unable to access much of the original data on
which official evaluations are based. However, the Productivity
Commission's final report on the Job Network has now been published, along
with the Government's response. The Department of Employment and Workplace
Relations' third evaluation report was also released at the same time,
with interesting new data on net employment impacts. It is therefore a
good time to take stock of what we now know about the radical experiment
and to consider what is promised under the new model from mid-2003
onwards.
Job Network Outcomes
The latest reports provide a mixed picture of the Job Network's
achievements. Overall they confirm earlier estimates that outcomes, while
gradually improving, appear broadly similar to those of the previous
Working Nation programs at their peak, taking into account differences in
program participants, the external employment environment and methods of
assessment. On the other hand, the Productivity Commission also confirms
what earlier research, including our own, has suggested, which is that
weaknesses in the funding structure have led to widespread 'parking' of
harder-to-place job seekers, many of whom receive little help while in the
intensive phase of assistance. There are also clearly still problems of
access and commencement of assistance for some key groups, including young
people and Indigenous job seekers. A number of submissions to the
Productivity Commission's review highlighted what they saw as a highly
fragmented employment system for young people and a lack of
"joined-up solutions" to their particular difficulties.
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As the Productivity Commission notes, gross outcome measures can be
misleading and tell us little about the net impact the employment programs
have on unemployment. Previous net impact measures have been based on
departmental post-programme monitoring studies. These have suggested, for
example, that the prospects of Intensive Assistance leaving income support
were around 10 per cent greater than those of a matched comparison group.
However, both the OECD in their review of the Australian labour market and
the Productivity Commission have highlighted methodological problems in
the way the Department's post-programming monitoring studies have been
designed, which tend to exaggerate the impacts. This has been recognised
in the Department’s recent evaluation of the net impact of Job Network
services, which is based on new methods that take better account of three
factors that are likely to be important.
These factors are the compliance effect – the effect on job seekers'
behaviour from simply being referred to a program; the program effect –
the actual benefit gained from the services provided on the program; and
the attachment effect – the generally negative impact of reduced job
search effort while involved in a program. On this basis, the Department
now estimates that the average net impacts of assistance are much smaller
than previously suggested – just over two per cent for Intensive
Assistance and between seven and eight per cent for Job Search Training.
Most of the impact (virtually all in the case of Intensive Assistance)
seems to be achieved not through program assistance itself, but as a
result of people moving off income support simply by being referred to the
programs. The assumption in the latter case is that when referred, people
either increase their own job search effort or are already working
unofficially.
The results are perhaps not as bad as they might seem at first sight.
The new estimation methods are tentative and probably conservative, while
the averages conceal variations that suggest significantly higher net
impacts for more disadvantaged job seekers. Overall the results are not
out of line with international experience of the relatively small net
employment gains to be had from labour-market programs and are also
probably similar to those achieved under previous assistance arrangements.
Cost Effectiveness?
These smaller net employment gains bring into question some of the
Government's bolder claims of greatly improved cost effectiveness under
the Job Network. DEWR comparisons of the costs of both gross employment
outcomes and net off-benefit impacts (based on their previous methods)
from Job Network and Working Nation programs suggest that the former are
substantially lower on average. The newer and more modest net impact
estimates, however, make Intensive Assistance in particular look a lot
more expensive per net employment gain. Similar caveats would also apply
to the net impacts of Working Nation programs of course, but as the
Productivity Commission states in noting that the aggregate cost of labour
market programs fell by around half between 1996-97 and 1999-00 without
much difference in unemployment levels: "This may well be the result
of greater cost effectiveness of the programs, but it could also be the
result of the imprecision with which the small impacts of labour market
programs are measured."
There seems little doubt that competition within the framework of Job
Network has produced some efficiency gains. It is difficult to pinpoint
quite how such gains are achieved because it remains hard to find out much
about what different agencies are doing on the ground – too much has
been 'commercial in confidence'. But some examples include innovative
relationship building between some agencies and employers and other bodies
to develop targeted employment opportunities, and the flexible use of
outcome funds to meet the range of costs for effective job search and
preparation. There was undoubtedly less flexibility for such approaches
under the CES.
On the other hand, competition among service providers has had other
spin-offs that are not easily estimated and are not captured at all in the
simple focus on measured employment outcomes. For example, a number of
providers and individuals consulted by the Productivity Commission, as
well as in our own study, pointed to some negative impacts of competition
on relations within the not-for-profit sector and on communities where
long-established local agencies ran into financial difficulties in the
earlier rounds of the Network. We also have to bear in mind employment
losses, as well as reduced pay levels and stress among some placement
staff in the privatisation process. The apparent efficiency gains of
getting broadly similar outcomes for a much reduced public expenditure
dollar have to be set against some of these displaced costs, which are not
well understood at present.
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Sustainability of Employment Outcomes
One of the other key questions that needs to be asked in relation to
recorded outcomes of employment programs is whether the jobs gained last
much longer than the time required to produce a paid outcome.
Sustainability of employment for disadvantaged job seekers has become an
important goal of policy in countries including the UK and US, in order to
avoid the problem of recycling through employment programs. The DEWR
evaluation goes some way to addressing this issue through longitudinal
analyses of outcomes from different Job Network programs. It suggests that
many of the jobs achieved do last longer than might have been expected. It
also points to some upward movement over time in terms of wages and hours
of work on the part of Job Network clients – though this trend is less
marked among those who began with relatively low-quality jobs.
Policy Dilemmas
The twin problems of ‘parking’ (a reluctance to put effort or
expense into harder-to-place clients) and 'deadweight' (the high
proportion of positive outcomes likely to have happened even without
assistance) present serious policy dilemmas. On the one hand, the research
outcomes suggest the need for a higher threshold of disadvantage for
access to Intensive Assistance, in order to reduce the amount of
deadweight in the system. On the other hand, there is the equally pressing
question of how to help the already more than 60 per cent who receive such
assistance without getting an outcome – as well as those coming round
for a second time. The question of how to deal with these problems marks a
point of distinction between the different responses of the Productivity
Commission and the Government.
Overall, the Productivity Commission has, perhaps not surprisingly,
opted in favour of greater competition and a purer market-based solution.
It suggests deregulating the ways in which providers are able to assist
their clients by giving them more freedom to refer on those with greater
employment barriers to other programs (such as community work or Work for
the Dole). There was strong opposition to this proposal from many of those
responding to the Productivity Commission's draft report and the
Government has not accepted it at present. However, one way of looking at
restructuring the former Community Support Program into the expanded
Personal Support Program under the Department of Family and Community
Services is in terms of movement towards focusing Job Network services
more on those with the capacity to benefit.
The Productivity Commission also proposes discarding the system of
competitive tendering – which it sees as cumbersome and over-controlled
by the Department – in favour of a licensing system, which it argues
will provide freer entry for providers to the employment services market.
It also advocates giving job seekers more freedom to move between
providers.
These proposals run counter to the general thrust of the Government's
plans for the next Job Network round. These emphasise stabilising and
consolidating the market around a core group of high-performing agencies,
along with some re-regulation to prevent some of the more dubious ‘innovations’
of previous rounds (such as bogus job creation and other improper
practices highlighted in the recent Senate enquiry. They also provide for
more rather than less specification of what providers must do for job
seekers, in order to address the problem of limited assistance to those
who are hard to place. New prescriptions include contact levels and times,
as well as earmarked 'Job Seeker Accounts'. These and other tied fees are
clearly aimed at countering the lack of incentives for agencies to invest
in disadvantaged job seekers – a problem also identified in the
Productivity Commission's review. There will also be less rather than more
freedom for job seekers to exercise choice by moving between agencies.
Perhaps one of the biggest changes proposed for Employment Services
Contract 3, as the next round is currently known, is an increase in the
overall volume of client flow into the Job Network by having every
eligible job seeker register with an agency at least for Job Search
Support. Managing this is likely to be a challenge both for Centrelink and
the provider agencies.
Under the new proposals there is also a complex interrelationship
between service fees, quality of outcome related payments and job seekers'
unemployment duration. This is designed to weight funds towards more
disadvantaged clients. However, in combination with intermittent six month
periods of customised assistance over 24 months or more, there appears to
be some potential for providers to calculate optimum times to attempt to
place job seekers nearing different time thresholds – perhaps in
collusion with employers wanting short-term workers. It remains to be seen
how this plays out.
Contract Rollover
The main tool for assessing whether agencies get their contracts rolled
over into the next round is the controversial 'star rating'. The
Productivity Commission reviewed the advantages and disadvantages of this
ratings system in its draft report, and further independent analysis since
then has given it a mainly clean bill of health. However, the star rating
system is less than fully transparent and may not accurately reflect some
of the complexities of difference between labour markets and the other
contexts in which different agencies are working at a local level. As with
many performance indicators there is also some danger of activities being
distorted as agencies race to boost their outcomes before contract
rollover.
It is difficult to determine from current published star ratings the
likely shape of the next round. Clearly, with the proposed rollover of
about 60 per cent of business to higher performers there is a major
incumbency advantage for providers that manage to get over the line. It
seems reasonable to expect some consolidation around major players in both
private and non-profit sectors. The new contract will also open up paid
Job Matching to other licensed recruitment agencies, so we can expect to
see a further shift toward the private sector in this area.
The rollover of course reduces the opportunities for new players to
enter the market and it will become even less meaningful than it is
already to talk about the structure as a competitive market. The
Government appears to have calculated that it has already achieved most of
the benefit it is likely to get from competition in this area and has
decided to go for stability instead – which makes sense in view of the
enormous transaction costs involved in tendering for each new round of
contracts.
Overall, there seems to be some tension between the Productivity
Commission's view that further gains can be had from introducing more
genuine market features into the Network and a Departmental desire to
consolidate it as a highly-regulated quasi-market. Although the
Department's evaluation speaks the language of incremental improvement and
fine-tuning, the Government's response to the Productivity Commission
report suggests that the door is not entirely closed on proposals for
greater market liberalisation. This includes the possibility that DEWR and
other agencies may be able in the future to source services from providers
other than Centrelink. The radical experiment may not be over yet.
This is an edited version of an article published in
the Social Policy Research Centre newsletter No 82.