Corruption and the Rate of Temptation - Do Low Wages in the Civil Service Cause Corruption?


WP/97/73-EAWP/97/73


Corruption and the Rate of Temptation:
Do Low Wages in the Civil Service Cause Corruption?
by Caroline Van Rijckeghem and Beatrice Weder


While it is generally agreed that government wage policy has an effect on
corruption, the magnitude of this effect is more controversial. It is often
argued that .efficiency wages. play a lesser role in government, because income
from bribery is likely to overshadow the disciplinary effect of job loss. As a
result, the argument goes, raising wages to the high levels required to deter
corruption may be prohibitively expensive. In an alternative view, modeled in
this paper, which relies on the concepts of .fair wages. and reciprocity,
motivational aspects can be strong even in high-bribe environments and
corruption can be eliminated at low wage levels.


The main empirical findings of the paper are these:

First, an increase in the ratio of civil service to manufacturing pay from 1
to 2 is associated with an improvement in the corruption index (which ranges
from 0 to 6) on the order of 1 point in the .between. (i.e., cross-country)
regressions for a sample of 25 developing countries. Second, civil service
wages are highly correlated with measures of rule of law and quality of the
bureaucracy, and may therefore have additional indirect effects on corruption.
Third, relative pay has no significant effect on corruption in .within country.
regressions, indicating that pay may not have a contemporaneous effect on
corruption. Fourth, quasi-eradication of corruption requires a relative wage of
3-7 times the manufacturing wage. Stronger internal and external controls are
associated with lower corruption across countries. These findings are
consistent with the .fair wage-corruption. hypothesis only when bribe levels
are low or the probability of detection is high.