Outcome-based Contracting and Gaming Practices in Marketised Public Employment Services. Dilemmas from the Italian Case

This blog is based on an article in the Journal of Social Policy by Gianluca Scarano. Click here to access the article.

Of the various aspects of activation policies, marketisation has probably been discussed and investigated most. It is frequently argued in the public debate that contracting out public employment services (PES) to private providers can help overcome a lack of staff, skills, and efficient process. However, academic debate has also produced evidence that such services are frequently characterised by various gaming practices in which their providers engage especially when dealing with clients faced by complex employment barriers. The central concern is still the difficulty of resolving the tension between efficacy and equity and the risk of moral hazard, particularly when providers use contracts to their advantage by focusing on those clients who are easiest to help in order to maximise profits. In consideration of such unintended consequences, some governments have progressively shifted towards the introduction and strengthening of performance signals in payment structures by means of outcome-based payments. My article aims to measure the extent to which the outcome-based contracting model could make service providers effectively accountable for client outcomes.  

In general, a balance between outcome-based payment and other payment structures for providers, such as fixed-payment schemes, is hard to establish. The choice of Italy as country on which to focus in relation to this research topic might appear trivial at first glance. The literature to date has focused mainly on cases with an early tradition of marketized services, while Italian PES have remained only marginally affected by marketization trends. However, Italy has been involved in this debate for a long time, because it has been historically marked by a lack of public resources for PES, even during the years of the Great Recession.

The quality of placement by public employment offices has always been considered very inefficient, and as responsible for the marked mismatch between labour demand and supply. This consideration has made the introduction of private intermediation unavoidable. At the same time, since the 1990s, marketization reforms have been intertwined with decentralization reforms. Italian policy-makers thought that the introduction of market-based strategies should take account of the adjustment of labour market policy schemes to regional demand. It then became possible for regional governments to determine the proportion of services to be delivered by for-profit service providers, and the contracting model to be adopted. Consequently, decentralised decisions on outsourcing contributed to jeopardising the implementation of market-based strategies in the country.

My research sought to take advantage of this differential implementation of the marketisation and contracting models at regional level in Italy. In particular, there are two neighbouring regions, with similar economic backgrounds, that can approximate two opposite contracting models: Lombardy (outcome-based payments) and Emilia-Romagna (fixed payments). These two regions thus constitute valuable cases with which to compare different and alternative contracting arrangements.  In fact, even if several studies have examined outcome-based contracting, few studies have empirically compared it with other contracting models. 

We know that previous studies in this field have frequently used qualitative means to explore patterns in the new trends of contracting-out logic and the implementation of market-based instruments in the provision of services. Indeed, more qualitative approaches, using exploratory interviews, may help to elicit information on how PES staff carry out the service delivery tasks required to assist jobseekers find work.

However, and this is the main conviction from which the research starts, there is a large amount of administrative data with which to evaluate the impact of employment services, and which make it possible to observe how the employment statuses of clients concretely change after the provision of services and how these outcomes may vary according to clients’ individual characteristics. The main limitation of this data is that there are few observable personal characteristics to be controlled. However, the information available is rich enough for a counterfactual approach to be adopted. This is necessary to determine the extent to which post-assistance outcomes are a function of referral to services. In particular, the analysis reported in this article relied on a quantitative methodology based on propensity score matching and logistic regressions. This enabled a broader assessment of the significant differences that may emerge between the two aforementioned contracting models. 

The dilemmas of outcome-based contracting are clearly evidenced by the results of this comparison. On the one hand, we find that the model with outcome-based payments effectively makes service providers financially accountable, compared to a model with fixed-payments. Lombard clients have greater chances of being employed while Emilian clients have only a slightly higher probability of being employed compared to other jobseekers. Nevertheless, some harder-to-help groups seem more likely to be given only short-term employment, in lieu of longer-term initiatives with more human capital content. Conversely, the findings of a model with fixed-payments show that the same groups are able to obtain longer employment contracts. 

Thus, should a contracting model be able to achieve more employment opportunities at the cost of shorter contract durations for the weakest groups? Or, conversely, should a contracting model be able to achieve more employment opportunities for only the needier groups, even at the cost of a decrease in the overall effectiveness of the system? 

Certainly, there is still no consensus in the academic and institutional debate on how outcomes should be measured and evaluated. The empirical evidence suggests that performance measures need to be carefully identified in order to promote long-term programme objectives while simultaneously generating more readily available performance information for programme management. Mediterranean welfare regimes, like Italy’s, have been historically marked by strong gender, education, and age-specific dualizations, which create ‘outsider’ groups with very weak attachment to the labour market. This should make the resolving the unintended consequences of marketisation a more pressing issue. 

About the author

Gianluca Scarano is Research Fellow at the Polytechnic University of Turin.


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