Social Service Futures Dialogue: Issues in market-based reform of human services: lessons from employment services

Sue Olney & Wilma Gallet

School of Social and Political Sciences, University of Melbourne

It has been more than twenty years since the Australian Government opened case management services for the long-term unemployed to the market, laying the foundation for its now fully privatised employment services system. The system is cited as a successful model of outsourced service delivery in the Australian Government’s response to the recommendations of the Competition Policy Review to ramp up competition in the delivery of human services. Yet the employment services system’s measures of success, focused on aggregate outcomes and service delivery costs, mask the adverse impact of its marketisation on ‘hard to place’ jobseekers and on not-for-profit organisations that have traditionally championed those jobseekers (Gallet 2016). Against predictions and despite calibrated incentives, the prospects of the long-term unemployed moving from welfare to work have not improved through two decades of radical institutional change underpinned by market-based instruments (Considine et al. 2015; Department of Education, Employment and Workplace Relations 2012:13, 2011:13, 2010:10). Arguably, savings in the system have been achieved at the expense of jobseekers most in need of assistance and support to find a job, and the flow-on costs of their persistent unemployment ripple across government. Those costs are not factored into the employment services system’s metrics, leaving the public value of the model open to debate (Moore 1995).

We argue that there are internal contradictions in the process of activating people facing multiple and complex barriers to work, stemming from New Public Management reforms across the public sector, that expose those jobseekers to exploitation or neglect in services to which they are referred to meet their obligations for income support, exacerbating their labour market disadvantage. For jobseekers facing multiple and complex barriers to work, the adverse impact of the marketisation of activation and employment assistance – in particular, the pursuit of value within narrowly defined parameters by the bureaucracy and contracted service providers – is evident from the initial assessment of their capacity to work, to the process of addressing their barriers to work, to their poor employment outcomes.

The employment services environment

The Working Nation white paper was Australia’s first step towards privatising its employment services system, in response to a sharp rise in long-term unemployment that the public employment service was failing to curb (Keating 1994a, 1994b). Since then the system has undergone three significant reforms – Job Network from 1996 to 2009; Job Services Australia from 2009 to 2015; and the jobactive 2015-2020 contract – and has been fully outsourced through a competitive public tender process since 2003. The number of organisations contracted to deliver employment services has fallen from a high of three hundred and six under Job Network in 1998 to forty-four under jobactive in 2015. The system is underpinned by a ‘work first’ model of jobseeker activation and its funding is tied to outcomes.

Employment services providers are contractually obliged to enforce activity requirements for income support and to help the unemployed overcome issues keeping them out of the workforce. For jobseekers with a large distance to cover to the labour market, the process of activation extends beyond the employment services system and its resources. Some of these jobseekers have never worked, some have low levels of education and some have outdated qualifications (ABS 2006:28). Some have little or no capacity to work full time or are only able to work episodically (Department of Social Services 2015:51,57). Besides lacking skills to fill available jobs, they may be struggling with mental health issues, trauma, poverty, prejudice, drug and alcohol use, unstable accommodation, anxiety, mild physical and intellectual disabilities, isolation, unreliable transport, care of dependents, complex peer and family issues and intergenerational labour market detachment (Ziguras 2005:19; Goodwin-Smith & Hutchinson 2014). Under the supervision of employment services providers they move around and between a range of federal and state and territory government-funded services to address non-vocational barriers to work or gaps in skills, with the aim of improving their prospects of finding and keeping a job.

The range of actors involved in this process and the design of the system suggests that shared understanding of what is keeping these jobseekers out of the workforce – agreement on the problem - and shared objectives – agreement on the solution – between government agencies, employment services providers, other service providers, employers and the jobseekers themselves are crucial factors in tackling long-term unemployment. Evidence of poor employment outcomes for highly disadvantaged jobseekers suggests there are issues on both fronts. There is a limited understanding of the complexity of problems confronting highly vulnerable jobseekers and no consensus or shared approach on how to address these issues. Data on unemployment and employment interventions in Australia from 1986 to 2015, summarised in Figure 1, reveals that long-term unemployment has persisted through global and domestic economic shifts, changes in the characteristics of jobseekers and the job market, changes of government, changes to machinery of government, changes in welfare and labour market policy, privatisation of employment services and over twenty years of continuous economic growth (ABS 2001; ABS 2015; Reserve Bank of Australia 2010; Reserve Bank of Australia 2015). Despite ongoing reform of the employment services system, the majority of long-term unemployed people and people at high risk of long-term unemployment in receipt of income support in Australia remain unemployed (Department of Education, Employment and Workplace Relations 2012:7,13, 2011:7,13, 2010:5,10). Furthermore, the sustainability of successful outcomes for this group is unclear, as the rate of return of those who do find work to unemployment benefits is not tracked (Department of Employment, Workplace Relations and Small Business 2000:87; Department of Employment and Workplace Relations 2002:69-70).

Figure 1: Australian unemployment and employment services interventions 1986-2015

 (ABS 2001; ABS 2015)         

In the process of addressing their barriers to work, ‘hard to place’ jobseekers are referred by employment services providers to services outside the employment services system, tapping into a range of publicly funded services in federal, state and territory government jurisdictions. Contracting-out may have improved the efficiency and effectiveness of Australia’s employment services system overall, but the model is failing the people most in need of assistance to move into work and its metrics are not capturing the economic and social costs stemming from their persistent unemployment and ongoing activity requirements for income support. That successive Australian Governments have persevered with this approach for more than twenty years in the face of poor outcomes for the long-term unemployed raises questions about the basis on which the value of the model is assessed.

Issues with the model for highly disadvantaged jobseekers

A key weakness in the model is framing long-term unemployment as an individual problem affecting people on the margins of society, and treating its causes and consequences across a fragmented service system. This harks back to Rittel & Webber’s research into ‘wicked problems’ in the early 1970s, which pinpointed the weakness in efforts to address such problems “at the juncture where goal-formulation, problem-definition and equity issues meet” (Rittel & Webber 1973:156). As their work predates New Public Management, this suggests that market-based reforms are not a panacea for wicked problems like long-term unemployment.

When the Australian Government outsourced delivery of employment services, it was seeking innovation, responsiveness, flexibility, understanding of the local environment and cost savings from a diverse range of providers who could shepherd the unemployed from welfare to work using their networks, skills and expertise without the constraints of government bureaucracy (Keating 1994b:129; Maddock, Corden & Hunt 1998:14; Giddens 1998). From the outset contracts were awarded to a mix of for-profit and not-for-profit organisations, including faith-based organisations with strong track records of delivering state-funded assistance to welfare recipients (Considine 2001; Gallet 2016). The government shied away from specifying processes to help people with multiple and significant labour market disadvantages prepare for and find a job because of the diversity of those jobseekers’ motivations and barriers to work, instead adopting an outcomes-based funding model that offered providers financial and performance ranking incentives to work with ‘hard to place’ jobseekers. But in contracting-out responsibility for achieving specified outcomes for those jobseekers in a ‘black box’ delivery model, the market’s inclination to push the boundaries of contracts created a problem for government (Streeck & Thelen 2005). Its response to providers exploiting weaknesses in the employment services contract by ‘creaming’ work-ready jobseekers that could generate fast income and ‘parking’ those that were hard to place was to increase regulation and oversight of the system. Over time, the innovation and flexibility sought from the market was tempered by explicit and complex rules and regulations on the part of government and mimetic isomorphism among providers (Considine 2001; Considine, Lewis & O’Sullivan 2011; Considine et al. 2015). On both sides, the focus on cost, compliance and outcomes sharpened. Jobseekers needing time and high levels of effort and investment to compete in the mainstream labour market were relegated to the sidelines by most providers, receiving enough attention to meet activity requirements for income support but making no real progress towards employment (Considine, Lewis & O’Sullivan 2011:828; Finn 2011; Cowling & Mitchell 2003).

This effect, given the system’s procurement and reporting framework, is unsurprising. Employment services can increase the probability of someone finding work but provide no guarantee. Ultimately, like leading the proverbial horse to water, providers cannot control the outcome of their interaction with jobseekers because an employment outcome is produced by a jobseeker and an employer. Yet achieving outcomes specified in the employment services contract not only generates providers’ income but positions them for success in future tenders for government business. In the quasi-market created through the privatisation of public employment services, contracted organisations are required to demonstrate their competitiveness by achieving the outcomes demanded by the purchaser. Failure to achieve the desired outcomes creates financial instability for these organisations and can ultimately result in a loss of business (Gallet 2016). That is a powerful incentive for providers to focus their efforts on activity most likely to help them meet or surpass their key performance indicators, and to minimise the cost of servicing jobseekers least likely to generate income, regardless of flow-on effects.

In contracting both for-profit and not-for-profit providers to deliver employment services, the Australian Government appears to be seeking balance in the system between efficiency and altruism. Yet it is naive to expect for-profit contractors to put the public good before commercial advantage and to expect not-for-profit providers to be the moral compass of the system while competing in it. All employment services providers, both for-profit and not-for-profit, have their own reasons for bidding for the contract and all test the limits of the employment services regime in different ways to achieve their own objectives. What is less clear is where they draw the line between mimicking the behaviour of providers who are reaping rewards from the system and censuring those they believe to be gaming it. Streeck and Thelen suggest this is part and parcel of institutional change, a process of pushing the boundaries of rules “making use of their inherent openness and under-definition” until they are revised and then starting the process again (Streeck & Thelen 2005:15). However it pinpoints a tension in outsourcing welfare services. O’Flynn (2015) argues that what is reasonable from a commercial viewpoint is less palatable, politically and morally, when organisations are seen to profit from delivering public services to citizens vulnerable to exploitation. Yet not-for-profit organisations like The Salvation Army Employment Plus and Mission Australia generate millions of dollars in revenue each year from this activity to further their own mission. It could further be argued that large, multi-national firms involved in the production of weapons or the building and running of correctional facilities, for example, ultimately profit from the failure of the welfare state. Should such firms be excluded from delivering services within it? For governments seeking immediate cost-savings in the welfare arena, striking a balance between value, legitimacy and organisational capability is an ongoing challenge (Moore & Khagram 2004:3).

Where profits from delivering employment services are distributed does not seem to factor into assessment of the public value of outsourcing them in Australia, suggesting that efficient delivery of services is a higher priority for the authorising environment. However in practice, the pursuit of efficiency can limit access to services for some citizens, shifting costs and challenging traditional conceptions of citizenship (Somers 2008:134-135; Freedland 2001:91). The long-term, flow-on costs of governments failing to protect citizens who are ‘hard to service’ and vulnerable to neglect or exploitation in the market can be high. In the employment services system, there is ample evidence that preparing some jobseekers for work comes at a cost the market is unwilling to bear, and equally ample evidence that the fallout ripples across government and impacts on the economy and society.

While employment services providers are clearly motivated by their contract to move jobseekers into work quickly, incentives for the other actors to contribute to that goal are less clear. This gives rise to internal contradictions in the activation process. There is no requirement or incentive for service providers within or outside government to consider the consequences of their interaction with the long-term unemployed beyond their individual key performance indicators, and no overarching authority steering or coordinating their activity or capturing meta-data on its impact. This is a significant weakness in the institutional architecture of activation and employment services. While the barriers to work faced by the long-term unemployed are complex and intertwined, governments’ efforts to address those barriers are not mutually reinforcing. Every service provider interacting with the long-term unemployed and people at risk of long-term unemployment - both within government and working under contract – is working towards achieving key performance indicators tightly bound to the critical success factors of its funding sources. This is an enduring legacy of New Public Management reforms.

Implications

The abiding foundations of reforms to Australia’s employment services system are mutual obligation, stemming from Mead’s work on poverty and its causes (Mead 1992; 1997); and marketisation, embracing private sector style approaches to designing and delivering public services to be more responsive, accountable and efficient (Hood 1991; Osborne & Gaebler 1993; Giddens 1994). Successive governments have adhered to these doctrines in tackling long-term unemployment despite lack of evidence that either has a significant or enduring positive impact on entrenched labour market disadvantage. They continue to reform and adjust the welfare-to-work system through a complex mix of centralised and decentralised processes, markets, quasi-markets, sanctions and incentives designed to change the behaviour of the unemployed and the services they access.

In the welfare-to-work arena, market-based practice is pervasive in services delivered directly by government as well as outsourced services. In theory, this model promotes responsiveness, flexibility and mutually reinforcing practice at a local level to achieve common or complementary outcomes. In practice, the business rules and metrics for each service are tightly bound to the critical success factors of their funding sources, which remained siloed. The key strength of market-based approaches to delivering public services – calibration and interplay between providers’ sources of revenue, sources of legitimacy, individual governance structures, the regulatory environment in which they operate and their relationships with their clients and other organisations – is lost or diluted in risk management and the pursuit of narrowly defined key performance indicators.

The rise of New Public Management was attributed to political leaders and the community becoming dissatisfied with the service they received from the public service under traditional, bureaucratic models of administration, which they viewed as tied up in process and out of touch with reality (Hughes 2003). Now agencies working with the most vulnerable members of society in Australia argue that the state’s approach to marketising public services, including employment services, is in turn tied up in process and out of touch with reality. We argue that in the process of activating people with a long distance to travel to the labour market, the proliferation and fragmentation of government programs, service contracts and regulation focused on producing value and reducing risk within narrow parameters has exaggerated the divide between the problem structure and the institutional structure, rather than bridging it. The pursuit of value within narrow parameters and short timeframes by each service involved the welfare-to-work market are barriers to both defining the problem of labour market exclusion and finding the solution.

The search for a model of delivering employment services that balances accountability and efficiency and protects vulnerable service users from exploitation or neglect continues. Neither a ‘black box’ approach nor heavy government oversight of employment services providers has improved employment outcomes for people with multiple and significant labour market disadvantages. Those jobseekers offer little potential reward for effort to employment services providers in a payment-by-results system focused exclusively on moving jobseekers into work. While the profits of success in the employment services system have been privatised, its metrics ignore the socialised economic and social costs that flow from its shortcomings. The ‘work first’, outcomes-based funding model and metrics for employment services dictates how providers interact with jobseekers, employers and with other services, and the process and patterns of referral of ‘hard to place’ jobseekers to other services. The key question for governments is whether there is public value in addressing issues around the treatment of the long-term unemployed. That assessment can only be made by weighing up the full economic and social costs of particular groups of citizens being excluded from or avoiding participating in the labour market.

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