Differential pricing and private provider performance

In many countries, employment services are contracted out to private providers. However, there is little evidence on the contract design as well as on the effects of differential pricing on private provider performance. This paper contributes to the literature by presenting detailed information on the contract design and compensation of German private employment service providers in 2009 and 2010. Using a comprehensive and unique data set, I estimate average marginal effects of different compensation components on labor market integration in the short and longer run. The estimation results indicate that high performance-independent upfront payments can decrease the reemployment probability of unemployed workers depending on subgroups of clients and characteristics of the private provider (market). High performance-based payments, however, on average have positive effects on private provider performance in the short and longer run. High malus payments on average have no effects on private provider performance.