Understanding the Public Services Industy

Public Services Industry Review
people, whereas the opposite might have been expected. Other literature provides a
similarly mixed picture: papers finding the third sector more efficient include Cutler
and Horwitz (2000), Ferrier and Valdmanis (1996), and Wilson and Jadlow (1982) on
hospitals, and Nyman and Bricker (1989) on nursing homes. Finding the opposite
are studies undertaken by Woolhandler and Himmelstein (1997), Becker and Sloan
(1985) on hospitals, Blau and Mocan (2002), and Mocan (1997) on day care centres.
Conversely, Bennet & Iossa (2005) found that even if a not-for-profit firm cares more
than the for-profit firm about social benefits, it may not generate the greater social
benefit.
3.35 NIESR (2007) explored the available evidence on the performance of early years
education/childcare by provider type. Although some of the findings were not
conclusive or limited by data, the general findings supported the public sector’s role
in provision of early years education, particularly in terms of better outcomes for
child development and the quality of maintained facilities compared with those in
the private and independent sectors. The differences between individual providers,
however, were more significant than the differences between types of providers.
3.36 The theoretical literature referred to above described a possible ‘trust signal’ for third
sector providers due to a belief among users that they will not cut quality in the way
that a private sector supplier might. However, this signal has less impact if customers
are well-informed. Indeed, there is some evidence that less well-informed customers
self-select into non-profit institutions (Holtmann and Ullmann, 1991, and Schlesinger,
Gray and Bradford in 1996) although evidence is limited by the difficulty of capturing
proxy indicators for the less well-informed. Where competition is low, not-for-profit
organisations provide a higher level of access (see for example, Mas (2008).
3.37 Huysentruyt, M. (2006), analysing DFID contracts, finds not-for-profit organisations
compete most effectively where there are important hard-to-measure quality
innovations. However, third sector providers are less likely to adhere to the procurer’s
terms of reference. There is substantial literature suggesting that the third sector will
attract workers who exhibit pro-social motivation and who will donate labour because
they care about the quality of the services they contribute to. Donated labour is the
willingness to work more hours or harder than is contractually required even though
it brings no greater career opportunities. The theoretical literature suggests that such
caring individuals will not donate labour in the private sector because a private owner
will take advantage of the donated labour to reduce manpower and there will be no
improvement in quality. The evidence shows that donated labour as measured by
unpaid overtime does tend to be higher in the third sector than the private sector.
Gregg et al. (2008) find that people working in caring industries in the not-for-profit
sector are 12 per cent more likely to do unpaid overtime than their equivalent in the
private sector. However, they find that people do not change their unpaid overtime as
they move sector. Rather it appears that the third sector attracts people who are prone
to donate labour.
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