Private-sector involvement in employment policy?

Determining eligibility for entitlement programs is a fundamental government responsibility that should not be delegated.

The government has announced that it will work to revive the “Wisconsin program” to increase employment among recipients of public support. The previous version of the program, initiated as a pilot in 2004, had some success in boosting employment, but it also drew a great deal of criticism for its high-handed treatment of recipients.
Industry, Trade and Labor Minister Binyamin Ben-Eliezer assured voters that the current version would rectify some of those problems. However, in many respects the positive and negative outcomes of the programs are closely coupled; it remains to be seen if a better mix can be achieved.
The most significant innovation of the program, which has been called Mehalev and Orot Taasuka, is the outsourcing of placement to private services, in place of the official government Employment Service. The theory behind this change has two elements: First, that the Employment Service has no real incentive to place applicants; thus, they mainly function to confirm that recipients are in fact unemployed and seeking work, rather than to proactively help them seek work.
Second, that the first element matters; namely, that an outside service can be of meaningful help in finding jobs for the unemployed. Private agencies were paid thousands or even tens of thousands of shekels for each successful placement, on the theory that even such a large sum is a bargain price to get someone off expensive government assistance.
A problem with this setup is that the true incentive is not to get applicants jobs but rather to get them off of government assistance, and there are two routes to this outcome: One route is to get them a job, and the other is to make a determination that the participant is not cooperating with the program and deny him or her benefits.
Furthermore, the threat of the latter can be an effective spur to the former. There were many claims that aid recipients were unjustly denied benefits by the private agencies. One of the changes being made in the program is that while the private agencies will be responsible for placement, only government employees will be authorized to deny eligibility. In addition, the criteria for such denial are being made more lenient in the first place.
I believe this change is necessary. Determining eligibility for entitlement programs is a fundamental government responsibility that should not be delegated, certainly not to a body with a built-in conflict of interest in the determination.
Another problem with the program was that the agencies get paid for every person removed from public assistance, without any attempt to measure if the placement was actually due to their efforts. After all, hundreds of people find jobs every day without the help of any professional organization, public or private.
If we combine the two criticisms of the original program, we get to the crux of the problem with the new and improved program. Many people did find jobs through the agencies, but these people fall into three categories: People who would have found jobs anyway, people who found jobs because of the threat of denial of benefits, and people who found jobs because of the unique ability of the placement services.
A definitive judgment is impossible to deliver, but my impression is that the first group is by far the largest, the second group is of meaningful size, and the last group is of negligible size. It is just not plausible to me that an external agency, even a skilled and sincere one, can know more about a person’s abilities and opportunities than that person.
If follows that once the eligibility determination is rightfully restored to civil servants, the private agencies no longer have any useful role to play. If the decision is made to be lenient in denying benefits, the program will have no impact. If the decision is made to be strict, public servants can be just as strict as private agencies but in a more transparent and accountable way.
The result of outsourcing placement services to private agencies will be to pay them for outcomes that are not in any meaningful way the results of their efforts. If indeed any money is saved by tightening the criteria for eligibility for government payments to needy individuals, much of it will be wasted by the lax criteria for making superfluous government payments to the private sector.
Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).