Why Public Employment Services Always Fail. Double-sided Asymmetric Information and the Replacement of Low-skill Workers in six European Countries

It has been a general finding across Europe that very few job matches are facilitated by public employment services (PES).The article explains this failure by highlighting the existence of a double-sided asymmetric information problem on the labour market. It is argued that although a PES potentially reduces search costs, both employers and employees have strong incentives not to use PES. The reason is that employers try to avoid the ‘worst’ employees, and employees try to avoid the ‘worst’ employers. Therefore these services get caught in a low-end equilibrium that is almost impossible to escape. The mechanisms leading to this low-end equilibrium are illustrated by means of qualitative interviews with 40 private employers in six European countries.