October 11, 2007

Incentives and Regional Coordination in Employment Services

Due to yardstick competition, municipalities have financial incentives to reduce unemployment, but are not likely to cooperate with each other to have the scale advantages of a regional labour market.

On the other hand, a regional public employment service, like the CWI in the Netherlands, has a higher probability and value of matching, but it lacks the incentives to exert the optimal mediation effort.

This paper presents a game theoretical model that addresses the trade off between regional coordination and incentives in the mediation of unemployed in the Netherlands. The model is calibrated with information on vacancies and CWI clients for the Netherlands, in order to get an impression whether it is optimal to have a public employment service in the context of this model. Finally, various institutional settings, like a privatised employment service and a performance contract for the employment office, are considered.

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Arjen de Vetten Read more