Performance pay for private program providers and impact on participants: A field experiment with employment services in Norway

• Published in: Labour economics p. 102753
• Main Author: Hernæs, Øystein M.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2025
• Subjects: Active labor market policies' Contracting out' Job-search assistance' Performance pay' Private provision of employment services; Active labor market policies' Contracting out' Job-search assistance' Performance pay' Private provision of employment services; J64; J68; L33; H43
• ISSN: 0927-5371
• DOI: 10.1016/j.labeco.2025.102753

•Large-scale RCT compares performance pay to hourly pay in employment services in Norway.•No effect on earnings, employment, or hours worked after 12 months.•Null results are precisely estimated: ±€5 monthly earnings, ±1pp employment.•No evidence of differential effects across participant subgroups.•Performance pay yielded lower public costs, though cost data are uncertain. This study examines whether performance-based pay for private employment service providers improves employment outcomes for program participants compared to traditional hourly compensation. Finding effective ways to outsource public services to external providers has the potential to improve the quality and efficiency of these services. Using a large-scale randomized controlled trial (RCT) conducted in Norway from April 2018 to December 2021, we evaluate the impact of different payment models on the performance of private firms in delivering labor market programs. A total of 4898 unemployed individuals were randomly assigned to either a treatment group (37 %), where providers received performance-based pay contingent on participants’ employment outcomes, or a control group (63 %), where providers were compensated on an hourly basis. Despite the substantial financial incentives involved, our findings reveal no significant differences in employment rates, earnings, or hours worked between the two groups. The results allow us to rule out effects on monthly earnings of ± €5 and employment effects of ± 1 percentage points after 12 months. There were no indications of heterogeneous treatment effects across different participant groups. A cost-benefit analysis suggests a supportive case for performance pay due to lower public costs, although this estimate is subject to uncertainty.