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Effects of outsourcing employment services: evidence from a randomized experiment

In many countries welfare services that traditionally have been provided by the public sector are increasingly being contracted out to private providers. But are private contractors better at providing these services? We use a randomized experiment to empirically assess the effectiveness of contacting out employment services to private placement agencies. Our results show that unemployed at private placement agencies have a much closer interaction with their placement worker than unemployed at the Public Employment Service (PES). In particular, unemployed at private agencies receive more assistance in improving their job search technology. We do not find any overall difference in the probability of employment between private placement agencies and the PES), but this hides important heterogeneities across different types of unemployed. We find evidence that private providers are better at providing em¬ployment services to immigrants, and also indications that they may be worse for adolescents. Any effects tend to fade away over time.

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Paper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2009:23.

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Length: 42 pages
Date of creation: 30 Nov 2009
Date of revision:
Publication status: Published as Bennmarker, Helge, Erik Grönqvist and Björn Öckert, 'Effects of outsourcing employment services: evidence from a randomized experiment' in Journal of Public Economics, 2013, pages 68-84.
Handle: RePEc:hhs:ifauwp:2009_023
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  1. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
  2. Winterhager, Henrik & Heinze, Anja & Spermann, Alexander, 2006. "Deregulating Job Placement in Europe: A Microeconometric Evaluation of an Innovative Voucher Scheme in Germany," IZA Discussion Papers 2109, Institute for the Study of Labor (IZA).
  3. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  4. Oliver Bruttel, 2005. "Are Employment Zones Successful? Evidence From the First Four Years," Local Economy, London South Bank University, vol. 20(4), pages 389-403, November.
  5. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
  7. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
  8. Lindqvist, Erik, 2008. "Privatization of Credence Goods: Theory and an Application to Residential Youth Care," Working Paper Series 750, Research Institute of Industrial Economics, revised 23 Sep 2008.
  9. Duggan, Mark, 2004. "Does contracting out increase the efficiency of government programs? Evidence from Medicaid HMOs," Journal of Public Economics, Elsevier, vol. 88(12), pages 2549-2572, December.
  10. Ochel, Wolfgang, 2007. "Contracting out Employment Services Involving Temporary Agency Work in Germany," MPRA Paper 13820, University Library of Munich, Germany.
  11. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
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