Contracting welfare-to-work services: use and usefulness

This paper contributes to the broad literature on public services contracting in two ways: We provide an empirical analysis of contracting decisions in the provision of welfare-to-work (WTW) services, and we explicitly model two forms of external provision of WTW services by municipalities. We estimate both the WTW-contracting decisions of Dutch municipalities and their impact on the performance, measured as the fraction of Social Assistance recipients. The two forms of external provision are (1) Contracting with other municipalities and/or (2) Contracting-out services to private providers. Our findings suggest that contracting decisions are predominantly driven by cost considerations, both for the decision to contract with other municipalities and the share of contracting out to private providers. Municipalities with low WTW budgets or facing budget constraints are more likely to contract with external parties – presumably this reduces their costs and the risk of future budget deficits. We do not find contracting decisions to affect the performance of municipalities, measured as the use, inflow or outflow out of the SA scheme. From this alone, however, we cannot conclude that both the three provision modes are equally cost-effective too, as external provision may be less costly.

Cream-skimming, parking and other intended and unintended effects of performance-based contracting in social welfare services

We analyze the incentive effects of performance-based contracts, as well as their impacts on provider job placement rates, using unique data on Dutch cohorts of unemployed and disabled workers that were assigned to private social-welfare providers in 2002-2005. In a growing number of countries, the delivery of social-welfare services is contracted out to private providers, and increasingly so�using performance-based contracts. Critics of performance-based incentive contracts stress their potential unintended effects, including cream-skimming and other gaming activities intended to raise measured performance outcomes. We take advantage of variation in contract design in the Netherlands in 2002-2005, where procured contracts gradually moved from partial performance-contingent pay to contracts with 100%-performance contingent reward schemes, and analyse the impact of these changes using panel data that allow us to control for cohort types and to develop explicit measures of selection into the programs. We find evidence of cream-skimming and other gaming activities on the part of providers but little impact of these activities on job placement rates. Overall, moving to a system with contract payments fully contingent on performance appears to increase job placements for more readily employable workers, although it does not affect the duration of their jobs.

Auctioning incentive contracts; application to welfare-to-work programs

This paper applies the theory of auctioning incentive contracts to welfare-to-work programs. In several countries, the government procures welfare-to-work projects to employment service providers. In doing so, the government trades off adverse selection (the winning provider is not the most efficient one) and moral hazard (the winning provider shirks in his effort to reintegrate unemployed people). We compare three simple auctions with the socially optimal mechanism and show that two of these auctions approximate the optimal mechanism if the number of providers is large. Using simulations, we observe that competition between three bidders is already sufficient for the outcome of these auctions to reach 95% of the optimal level of social welfare.

Hidden unemployment in disability insurance in the Netherlands; an empirical analysis based on employer data

In this paper, we construct and estimate a (semi-) structural model, so as to uncover the fraction of hidden unemployment in the Disability Insurance (DI) enrolment rate. For this purpose, we use longitudinal administrative data of Dutch employers for 1994-2003. We find the (average) fraction of hidden unemployment in DI enrolment to amount to about 11%. This corresponds to 2.6% of the ‘true’ unemployment insurance (UI) enrolment rate of employers. Over the years, we observe a strong decrease in this fraction, from 5.4% in 1995, to 0.7% in 2003. In addition, our estimates suggest that most of correlation that is observed between the UI and DI enrolment rates can be explained by substitution effects, and not by ‘true’ correlation between the schemes that is exogenous to the firm. In the model, the fraction of hidden unemployment in the DI scheme is (over-)identified from various restrictions imposed by the data. First, identification follows from exclusion restrictions obtained from the coefficient estimates of variables that are assumed to influence the UI enrolment rate only. For this purpose, we use information on the wage distribution of workers employed at the firms in our sample, and sectoral growth rates. Second, identification of substitution effects follows from the observed correlation between both enrolment rates.

Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services

In a growing number of countries, the delivery of social welfare services is contracted out to private providers, and increasingly, using performance-based contracts. Critics of performance-based incentive contracts stress their potential unintended effects, including cream-skimming and other gaming activities intended to raise measured performance outcomes. We analyze the incentive effects of performance-based contracts, as well as their impacts on provider job placement rates, using unique data on Dutch cohorts of unemployed and disabled workers that were assigned to private social welfare providers in 2002-2005. We take advantage of variation in contract design over this period, where procured contracts gradually moved from partial performance-contingent pay to contracts with 100%-performance contingent reward schemes, and analyze the impact of these changes using panel data that allow us to control for cohort types and to develop explicit measures of selection into the programs. We find evidence of cream-skimming and other gaming activities on the part of providers but little impact of these activities on job placement rates. Overall, moving to a system with contract payments fully contingent on performance appears to increase job placements for more readily employable workers, although it does not affect the duration of their jobs.social welfare, performance contracting

Duration dependence in unemployment insurance and social assistance; consequences of profiling for the unemployed

It is well-known that the probability of an unemployed person finding a job decreases over the unemployment spell. On the one hand, this results from duration dependence at the individual level: unemployed job seekers may become discouraged, loose their working skills and become stigmatised by potential employers (‘pure' individual effects). On the other hand, if there is variation between individual exit rates, there is dynamic sorting of the unemployed with low exit probabilities (‘sorting effects'). Based on Dutch micro-data of social assistance (SA) and unemployment insurance beneficiaries (UI) for 1989-1996, we investigate to what extent this so-called ‘negative duration dependence' is due to sorting effects, as well as ‘pure' individual effects. The analysis suggests that after an unemployment spell of half a year, the decrease in the job finding rate for SA recipients can be attributed for 20% to 25% to sorting effects. After a three- to four-year period, the probability to find a job deteriorates further, but only due to individual duration effects. For UI recipients, similar results are found. From this, we conclude that profiling measures that target the inflow of unemployed with bad job prospects bear an important risk: unemployed that are initially classified as having good job prospects may also become long-term unemployed. Therefore, labor market policies should also focus on general measures, for example, by encouraging search activities of all workers that have spent a certain length of time in unemployment.

Disability insurance and unemployment insurance as substitute pathways

In this paper, we estimate the degree of substitution between enrolment into Disability Insurance (DI) and Unemployment Insurance (UI) in the Netherlands. Starting in the 1990s many policy measures aimed at reducing DI enrolment, and increase labour force participation. We quantify whether these policy measures have led to a reduction in hidden unemployment in DI. A side effect of the reforms may be increased pressure on UI. Therefore, we simultaneously estimate reverse substitution, that is, hidden disability in UI. To this end, we employ a sample of firms in the Dutch AVO database from the period 1993-2002. Using instrumental variables in a bivariate Tobit specification, we identify the hidden components in both respective schemes. The estimation results indicate that about 3% of all dismissals took place through DI, which implies that about one quarter of the DI enrolments observed in our sample in fact consists of hidden unemployment. We find no evidence for reverse substitution of disabled persons ending up in UI.

The effects of home-ownership on labour mobility in the Netherlands: Oswald's theses revisited

This paper examines the hypotheses presented by Oswald (1999) for the Netherlands. These are: I) Home-owners are less likely to move than renters, II) Unemployed home-owners are less likely to move than unemployed renters, III) Owners of houses are less likely to move to another job, because they are not willing to leave the� region and IV) Owners of houses are more likely to become unemployed. Using individual data of a panel of labour market and housing market histories for the period 1989-1998, we estimate a hazard rate model, that explain transitions on these markets. We find evidence for the Oswald theory in two cases: employed home-owners are less likely to move than renters are, and employed home-owners are less likely to change jobs than renters are. However, from these results alone we cannot conclude that employed workers that own a house have worse labour market positions than renters. Instead, their commitment to jobs makes them less vulnerable for unemployment. Also, Oswald's theory does not seem to hold for unemployed workers or nonparticipants. Instead, unemployed home-owners are even more inclined to move than renters.

Team incentives in public organisations; an experimental study

Using a simple production game, we investigate whether public firms perform better when they increase the power of their workersââ¬â¢ incentive schemes. In a laboratory experiment, subjects choose between a ‘public firm’ and a ‘private firm’ with team and individual incentives, respectively. When exposed to individual incentives, workers in the public firm increase effort in one parametrisation, but show a decrease in another. One reason for the latter observation is that reciprocators self-select in the public firm, rendering cooperation profitable.

Ranking the Schools: How Quality Information Affects School Choice in the Netherlands

This paper analyzes whether information on high school quality published by a national newspaper affects school choice in the Netherlands. For this purpose, we use both school level and individual student level data. First, we study the causal effect of quality scores on the influx of new high school students using a longitudinal school dataset. We find that negative (positive) school quality scores decrease (increase) the number of students choosing a school after the year of publication. The positive effects are particularly large for the academic school track. An academic school track receiving the most positive score sees its inflow of students rise by 15 to 20 students. Second, we study individual school choice behaviour to address the relative importance of the quality scores, as well as potential differences in the quality response between socio-economic groups. Although the probability of attending a school is affected by its quality score, it is mainly driven by the travelling distance. Students are only willing to travel about 200 meters more in order to attend a well-performing rather than an average school. In contrast to equity concerns that are often raised, we cannot find differences in information responses between socio-economic groups.school quality, school choice, information, media