Assessing the 'radical experiment': the Job Network after four years

The Productivity Commission also proposes discarding the system of competitive tendering – which it sees as cumbersome and over-controlled by the Department – in favour of a licensing system, which it argues will provide freer entry for providers to the employment services market. It also advocates giving job seekers more freedom to move between providers.

These proposals run counter to the general thrust of the Government's plans for the next Job Network round. These emphasise stabilising and consolidating the market around a core group of high-performing agencies, along with some re-regulation to prevent some of the more dubious ‘innovations’ of previous rounds (such as bogus job creation and other improper practices highlighted in the recent Senate enquiry. They also provide for more rather than less specification of what providers must do for job seekers, in order to address the problem of limited assistance to those who are hard to place. New prescriptions include contact levels and times, as well as earmarked 'Job Seeker Accounts'. These and other tied fees are clearly aimed at countering the lack of incentives for agencies to invest in disadvantaged job seekers – a problem also identified in the Productivity Commission's review. There will also be less rather than more freedom for job seekers to exercise choice by moving between agencies.

Perhaps one of the biggest changes proposed for Employment Services Contract 3, as the next round is currently known, is an increase in the overall volume of client flow into the Job Network by having every eligible job seeker register with an agency at least for Job Search Support. Managing this is likely to be a challenge both for Centrelink and the provider agencies.

Under the new proposals there is also a complex interrelationship between service fees, quality of outcome related payments and job seekers' unemployment duration. This is designed to weight funds towards more disadvantaged clients. However, in combination with intermittent six month periods of customised assistance over 24 months or more, there appears to be some potential for providers to calculate optimum times to attempt to place job seekers nearing different time thresholds – perhaps in collusion with employers wanting short-term workers. It remains to be seen how this plays out.

Contract Rollover

The main tool for assessing whether agencies get their contracts rolled over into the next round is the controversial 'star rating'. The Productivity Commission reviewed the advantages and disadvantages of this ratings system in its draft report, and further independent analysis since then has given it a mainly clean bill of health. However, the star rating system is less than fully transparent and may not accurately reflect some of the complexities of difference between labour markets and the other contexts in which different agencies are working at a local level. As with many performance indicators there is also some danger of activities being distorted as agencies race to boost their outcomes before contract rollover.

It is difficult to determine from current published star ratings the likely shape of the next round. Clearly, with the proposed rollover of about 60 per cent of business to higher performers there is a major incumbency advantage for providers that manage to get over the line. It seems reasonable to expect some consolidation around major players in both private and non-profit sectors. The new contract will also open up paid Job Matching to other licensed recruitment agencies, so we can expect to see a further shift toward the private sector in this area.

The rollover of course reduces the opportunities for new players to enter the market and it will become even less meaningful than it is already to talk about the structure as a competitive market. The Government appears to have calculated that it has already achieved most of the benefit it is likely to get from competition in this area and has decided to go for stability instead – which makes sense in view of the enormous transaction costs involved in tendering for each new round of contracts.

Overall, there seems to be some tension between the Productivity Commission's view that further gains can be had from introducing more genuine market features into the Network and a Departmental desire to consolidate it as a highly-regulated quasi-market. Although the Department's evaluation speaks the language of incremental improvement and fine-tuning, the Government's response to the Productivity Commission report suggests that the door is not entirely closed on proposals for greater market liberalisation. This includes the possibility that DEWR and other agencies may be able in the future to source services from providers other than Centrelink. The radical experiment may not be over yet.