Effects of Public Sector Wages on Corruption: Wage Inequality Matters

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Public-Private Wage Differentials: Evidence from Pakistan

“…It has been argued that public servants must be given salaries that can compete with those in the private sector, and in monetary renumeration (Dixit, 1997). Offering higher wages may result in a reduction in the levels of corruption in countries where employees in the public sector faces relatively compressed wages (Demirgüç-Kunt et al, 2021). Low wages in public sector may also result in higher inequality in the private sector (Garibaldiet al, 2021).…”

Appropriation, migration, and unemployment

“…The relationship between the minimum wage and unemployment has been fully discussed earlier, and so we mainly look at the relationship between the minimum wage and appropriation here. The existing empirical literature focuses on the relationship between the wage of the public sector and appropriation (see Cornell & Sundell, 2020; Demirgüç‐Kunt, Lokshin, & Kolchin, 2021). Although the previous studies have reached the conclusion that higher wages in the public sector can prevent appropriation and wage inequality matters, few studies directly concentrate on the effect of the minimum wage on appropriation.…”