Case Study: the Australian PES System

The Australian employment services industry is unique. No other country in the world has managed to build a Public Employment Services sector in which the front-line work is entirely carried out by non-government organizations contracted by government. Australia’s innovative system was praised by the OECD and incites the interest of government organizations around the world.

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Australia’s innovative outsourcing of Public Employment Services in the late 1990s initially attracted some criticism. Were the Australians converting the plight of the unemployed into a private money-making opportunity? Was their government abdicating responsibility? Such fears proved unfounded and unjustified.

Australian employment services are one of the most closely monitored industries in the world, with market competition forces simulated by stringent and relative performance standards upon which the continuance of an individual provider’s contract entirely depends. 

Contracted employment services providers are held accountable to a strict compliance framework. Contract cycles are short, with under-performing companies losing the right to re-tender. In the first 20 years, the market condensed from over 300 providers to under 50. A ‘Star Ratings’ system determines the relative success of providers in achieving employment outcomes through a complex calculation that takes into account size and geographical location of allocated sites, characteristics of the local job markets, and characteristics of the provider’s jobseeker case load. Providers scoring 2 or less out of 5 are deemed ‘under-performing’.

Remuneration for the provider also mostly depends upon successfully placing jobseekers in work, and in most cases the placed client must remain in employment for at least 26 weeks. The administrative burden for providers is considerable, and the rewards are hard-earned.

An advantage of this system design is that it focuses provider efforts at a local level on achieving successful employment outcomes. It is responsive to changing labor market conditions and attracts a mix of innovative service models delivered by small and large organizations, not-for-profit and private companies, and specialist and broad-based services. The system’s effectiveness depends on information conduits between government and providers, as well as  on sophisticated data and analysis of labor markets.

Read more about the unique Australian PES system in this free chapter of Managing Workforce Development:

Labor Market Partnerships

The environment in which PES operate is being reshaped by fundamental changes resulting from demographic shifts, new technologies, and globalization. Workers can now expect many job transitions throughout their careers, meaning they will have to continuously develop their skills. In many emerging and developing economies, these structural transformations are occurring against a backdrop of high levels of underemployment and informal types of employment. Poor labor market outcomes contribute to rising inequalities not only in terms of income, but also in terms of access to quality employment opportunities. In addition, labor productivity growth has tended to decline in both advanced and developing countries since the mid-1990’s, partly as a result of demographic change and mismatch between the supply and demand for skills.

Key challenge for PES: inclusion of people with a distance from the labor market

To tackle these complex labor market conditions, PES must widen the range of their responsibilities. While job brokerage and the provision of labor market information remain core activities, PES must evolve if they are to contribute to the broader objectives of boosting labor market participation, stimulating job creation, promoting inclusive growth, and raising labor productivity. The best way to do that is by connecting jobseekers, employers, and other labor market actors.

Recently, PES have had to operate under continued austerity measures, which means that services have to be delivered more efficiently without compromising quality. At the same time, PES often only have a small market share in terms of vacancy coverage and access to key labor market information. This means PES need to engage with a range of actors to share know-how, expertise, and resources, and to offer complementary services to jobseekers and firms.

In this context, the real question is not so much why, but how PES should cooperate with other actors such as government departments, regional and local authorities, private firms, employer’s associations, unions, and non-profit organizations.

This free chapter of Managing Workforce Potential will review how these forms of cooperation can be most effective. It argues that the local level is often the most pertinent for setting up partnerships, and that the adoption of appropriate governance mechanisms is a key success factor for such partnerships.