Contract Incentive Distortion in Outsourced Placement Services
Structuring private vendor contracts with large conditional placement bonuses can unintentionally incentivize vendors to alter effort distribution across job seeker tiers and reduce compliance enforcement. High placement bonuses encourage providers to rely on highly employable candidates to find jobs on their own while minimizing effort or sanctions.
Picture this
Think of a commission-based sales structure where salespeople receive a big bonus for closing any sale. Salespeople naturally ignore eager customers who would buy products anyway without help, focusing their time solely on middle-tier prospects while avoiding strict store rules that might scare customers away.
What the evidence says
Contract payments were structured as 30% upfront fixed payment, 35% upon job placement, and 35% if employment lasted at least six months. Private providers produced significantly smaller placement impacts on the most employable job candidates and applied sanctions to inactive job seekers significantly less frequently than public services.
- Who
- Nearly 44,000 job seekers across 216 public employment offices in four French administrative regions [3].
- How
- RCT evaluating subgroup impacts by candidate employability and tracking administrative enforcement of search sanctions under a private fee contract (30% upfront fixed, 35% on placement, 35% on 6-month retention) [3, 10, 12, 13].
What to do
Restructure public procurement contracts to eliminate upfront fixed enrollment fees and adjust conditional placement bonuses to prevent provider cream-skimming and sanction dilution.
From the source
"Private firms received a large payment conditional on job placement, so in order to maximize their gains, they may have found it efficient to focus their effort on less employable candidates, relying on the better candidates to find jobs by themselves."
public-or-private-job-counseling-in-france_0.pdf