24 May, 2008 Unlocking the Value of a Job: Market Design in Employment Services
By David Hetherington
The Federal Government’s Job Network is no longer fit-for-purpose. The program has been successful, but its economic backdrop has changed. Job Network was established to place large numbers of unemployed people into scarce jobs. Its role today is vastly different – preparing a smaller number of (often) disadvantaged individuals for a wide variety of jobs. Its focus must similarly change: the primary task must be to build “employability” rather than to act as a job matching service.
The Federal Government must redesign the employment services market to reflect today’s reality. Incentives should be restructured to better align the interests of jobseeker, employment service provider and taxpayer. Performance information should be made freely available to inform choice and raise quality. Contract structures should be reconsidered to enable flexibility and encourage localised innovation. Above all, the government’s investment in the Job Network should be predicated on the full value of a job.
This paper argues that a job’s value exceeds its nominal wage, and includes health, justice system and intergenerational benefits. Critically, this value is shared between worker, employer and the community. Our analysis shows that a $40,000 job generates total value of over $46,000, and that around $21,000 of this is public value. By contrast, the maximum amount invested by Job Network in that job is $6,600. Consequently, we argue that a significant increase in investment in the most difficult Job Network cases is warranted. This investment would deliver superior economic returns and continue to build Australia’s human capital.
The specific recommendations of the paper are:
– Restructure payments to providers. Instead of milestone payments at 13 and 26 weeks, pay a smaller up-front payment to providers, followed by a monthly trailing commission for up to 3 years of ongoing employment. Job Network providers would use this additional payment to build employability through evening classes or periodic weekend programs.
– Pay more for the service of moving the long-term unemployed into work. Evidence shows that these cases take time, and this time requires money. Instead of capping payments at $6,600, we should be willing to invest up to $23,000 (half the value of a job) in generating a $40,000 job.
– Quarantine a share of the existing Job Network budget to allow community joint ventures to tender for seed capital. We must move beyond the one-size-fits-all approach which pays providers from a simple fixed schedule for placing an individual into work. We need to encourage innovative local enterprise models, which allow existing operators to work creatively with secondary providers of skills, training, housing support and drug counselling.
– Publish KPI3 scores on Job Network provider quality and include these scores in the Star Ratings system. This would allow clients to make an informed decision when choosing between providers and raise overall service quality within the system.DOWNLOAD FULL REPORT