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Wolfgang Clement, Adecco Institute Chairman
At the beginning of August a piece of news reached us in Europe from China that, at first glance, appeared to be contradictory.
On the one had we had the optimistic forecasts about an unexpectedly strong rise in Chinese gross domestic product, which – at over 8% – was more than the government had dared to venture even months before. We took this as a good sign not only for the national economy, but also for the beleaguered Western industrialized countries, whose struggling export industries are waiting eagerly for fresh orders from the Far East.
But this was also accompanied by bad news from the Ministry of Human Resources and Social Security, which do not fit in at all with this optimistic growth forecast. In spite of the country's massive, 600 billion dollar-strong public investment program, the situation on the labor markets remains precarious, and the need to create new jobs more pressing than ever. Approximately half of the 140 million migrant workers who returned to their home regions for the New Year's celebrations, flocked to the cities and went in search of employment – together with around ten million new colleagues.
This obtuse dislocation between economic value creation and employment is currently far more pronounced in China than it is in the Western industrialized countries. The reason can be traced back to the economic differences between the financial centers around Shanghai, Beijing and Shengdu and the country's rural regions. The situation is compounded by the fact that a great many of the very labor-intensive jobs in the coastal areas have been lost in those sectors of the Chinese export industry which had previously supplied the global markets with cheap products – sectors which now play a less decisive role for the Chinese economy and, according to government plans, will be given even less weighting in the future.
More than ever before, China is in need of qualified, creative workers who can be utilized in the technologically more demanding production and service industries. This tightrope between rising unemployment among unskilled and semi-skilled laborers and a lack of qualified workers is one we will have to learn to walk in Europe, too. We have realized that we cannot separate labor market policy which – in most Western industrialized countries, is traditionally dominated by government policy – from the issue of the hard-to-place unemployed, especially the so-called long-term unemployed. We have therefore revamped and modernized our system of public labor administration in the sense of a entrepreneurially minded and oriented organization. And we have opened the door for it to cooperate with private job placement agencies.
Based on prior experience both at home and abroad, I would welcome it if more and more countries encouraged mutual, two-way cooperation between government institutions and private employment agencies. Recently, for example, the French government commissioned several large temporary employment agencies, including global market leader Adecco AG (Zurich), to place a significant number of its long-term unemployed. The motive appears clear: the French state labor administration obviously believes that private service providers have a more in-depth knowledge of the market and thus have a better chance of placing suitable candidates in the most suitable jobs.
Such Public Private Partnerships (PPP) are defined by us at the Adecco Institute (London) in our analyses and in cooperation with international institutions as jointly organized and accountable projects between government and private-sector partners. They are an expression of the changing role of governments, which are increasingly moving away from being exclusive providers of certain public goods and services to organizers, regulators and controllers. In the past 20 years, such PPPs were predominantly formed in traditionally heavily regulated and politically dominated sectors such as transport infrastructure, in healthcare or in the construction of public institutions.
Over the course of the past decade, however, new motives have come into play, such as the possibility to share risk or to exchange information for the mutual benefit of both parties. To this end, public labor administrations are looking for ways of learning and profiting from the specialist knowledge and specific placement techniques of private employment agencies. They may also be interested to find out that private employment agencies in Europe are starting to develop competencies in the area of training and retraining applicants.
It is important in all this that private-sector providers assess the capabilities of applicants effectively, adapt to market situations more rapidly than the other players, and focus on placing applicants in the labor market as quickly as possible. In so doing, however, they have no real business incentive to take care of those who are at a disadvantage, namely the long-term unemployed and unskilled workers. The motive, at least from a profit point of view, is to favor people who are easy to find positions for. But in order to satisfy the economic reality of the labor market and the socio-political necessity of fostering the development of hard-to-place workers, combined offerings from public and private providers make a lot of sense.
The UK and Australia were some of the first countries to introduce public private partnerships into their labor markets. In 1997 the UK was the first country in Europe to allow private-sector organizations to take part in tenders for job placement services, while in 1998 the Australian labor authorities used comprehensive regulatory reforms to contract out a significant portion of their employment services to external providers. The Netherlands and Germany followed suit.
United Kingdom
In 1997 Tony Blair's New Labour conducted a few experiments with the private sector in order to accelerate the combined reforms of the welfare state and the public sector and set new standards. The introduction of employment zones in 2000 was a major step toward intensifying competition. The employment zones were introduced in fifteen of the most severely disadvantaged labor market regions – regions where the fall in unemployment was lagging behind the national average. These employment zones were set up to give private providers the freedom to use their own methods and instruments. To this end, job placement contracts were issued to private providers within the scope of a call for tenders.
In the UK, this PPP-oriented labor market is worth one billion pounds – one fourth of the total government expenditure for active labor market programs. Services such as preparing applications and resumes and training courses for job interviews were awarded to private and voluntary organizations.
The net effect of the employment zones was remarkably positive. However, the analyses revealed that the short-term job placement results were better than in areas that were overseen by public-sector providers alone.
Australia
In May 1998, a large portion of the job placement and case management services in Australia were transferred to Employment National, a new provider of employment services featuring a social security benefits division ("Centrelink"). Centrelink manages unemployment benefit payments, compiles job-seeker profiles and forwards them to the relevant authority. Easy-to-place people are directed to the Commonwealth Employment Service, harder-to-place ones to the Job Network – private providers who have been awarded job placement contracts via a call for tenders. Australia implemented the first comprehensive commissioning of contracts for unemployed job referrals and case management functions in an OECD country.
In 2003 the Active Participation Model was introduced for the long-term unemployed. This model was the last step in the country's transformation from a provider of job placement services to a buyer of such services. The unemployment rate in Australia fell from 8.5% in 1995 to 5.1% in 2007.
The Netherlands
In 2002 the Netherlands took comprehensive steps to contract out services designed to reintegrate people who were deemed unlikely to find work within six months to private-sector providers. This structure is largely comparable to the Australian model, but takes greater account of client needs. Services which lend themselves to competition (such as reintegration services) are given to private providers, while public providers assume responsibility for those that are not suited to competition (especially the evaluation of applications for unemployment benefit).
Germany
Large labor market reforms have been introduced in Germany since 2003 which heralded a change in direction toward a more activate labor market policy and a greater emphasis on the principle of mutual obligation. Four laws governing modern services on the labor market (Hartz I to Hartz IV) were introduced on a step-by-step basis between 2002 and 2005. This new focus on a more active approach was tied to a cost/benefit analysis for active labor market programs with a subsequent reduction of the expenditure for training programs and programs to create jobs in the public sector. The liberalization of temporary employment proved to be a success. The new structure of the German federal agency for employment is intended to transform the authorities into a service provider with a private management structure. This difficult process is still ongoing.
There is no single best-practice model for PPPs. Countries that adapted their institutional structure in favor of public-private cooperation, have seen their labor market figures improve in the years that followed. Encouraged by these results, the EU, OECD and ILO are now also recommending other countries to instigate comparable reforms. The combination of public and private-sector strengths can enhance the employment opportunities for all involved. This will not mean an end to unemployment. But it is a sensible way of solving the serious problems facing the labor market more efficiently, effectively and – above all – quickly. And it's certainly worth a try – even in the People's Republic of China.
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