The Performance of Performance Standards

4 - The JTPA Incentive System: Implementing Performance Measurement and Funding

65 4 The JTPA Incentive System Implementing Performance Measurement and Funding Pascal Courty Gerald Marschke This chapter outlines the specifics of JTPA’s performance incentives , which provide necessary background information for subsequent chapters in this monograph. It also speaks generally to the challenges that must be met in formulating performance measures and incentives anywhere in government.1 In particular, we argue that the decisions about what should be measured, and how, when, and by whom it should be measured, make a critical difference for the success of incentivebacked performance measurement. The JTPA organization was conceived in the spirit of New Federalism . Proponents of New Federalism have argued that more decentralized decision making leads to “laboratories of the states” that foster innovation and creativity and hence, in the end, superior policies. In JTPA, states indeed used their discretion to produce a wide variety of performance measurement and incentive structures. The federal government retained control over some important aspects of the incentive system. The discretion left to the states, however, was important for determining the character of performance measurement and the incentives. By providing an analytical description of performance measurement in JTPA, this chapter complements the institutional literature on the JTPA bureaucracy (Barnow 1992; Svorny 1996). Although this literature provides a good understanding of how JTPA’s performance incentives worked at the federal level, it has little to say about its implementation at the state level. By offering a more complete description of JTPAperformance incentives, this chapter lays the foundation for under- 66 Courty and Marschke standing how the JTPAincentive system determined bureau-cratic behavior and program outcomes. Previous studies of the impact of JTPA’s performance incentive scheme on bureaucratic behavior (Anderson, Burkhauser, and Raymond 1993; Courty and Marschke 2004; Heckman, Smith, and Taber 1996; and Marschke 2002) have used only the federal guidelines, which provide an incomplete and possibly misleading representation of the true incentive systems.2 Along with others (see, e.g., Wholey 1999, p. 305), we believe that such case studies of operational performance measurement systems are important inputs into developing theories to understand and recommendations to improve performance measurement in the public sector. We limit our description to the state incentive and performance measurement policies for the years 1987–1989 for a sample of 16 states (identified in Table 4.1).3 In describing JTPA’s performance-based incentive system, we address three questions. First, what was the nature of the training center’s incentive? Or, how much was at stake? Second , which dimension of performance did JTPA reward? That is, what mattered? According to the act, Congress intended the performance incentives to measure the training centers’ success in developing participants ’ labor-market specific human capital (U.S. Congress 1982, Section 106[a]). Because direct measures of human-capital value-added are unavailable, the program’s federal overseers have resorted to proxies of value-added. At the heart of the JTPA incentive system is a set of performance measures based on the labor market outcomes of enrollees at or shortly after training. We describe these performance measures. Third, what is the relationship between performance and awards? In JTPA, states determined awards in three steps. First, they standardized the performance outcomes to make them comparable across training centers. States rewarded training centers not for the absolute level of performance but for their performance in excess of a numerical threshold , or performance standard. The performance standard depended on factors that were specific to each training center and outside the centers’ control. The performance standards were intended to establish reasonable counterfactual levels of performance that one would expect given the environment in which the training center operated. The second step was to establish the training center’s eligibility for an award. Training centers were usually eligible only if they exceeded the standards associated with all or a defined subset of the performance measures. The JTPA Incentive System 67 Finally, the states formulated award functions that translated training centers’ excess performances into budgetary awards. The sensitivity of the award to excess performance determined the strength of the incentive and varied across states and over time. The chapter is organized as follows. The first section investigates the bureaucrats’ motivations for seeking awards. The second section explains the JTPA performance measures and also how performance outcomes across the population of training centers were adjusted to level the playing field. The third section describes the incentive award, and the last section concludes...