Wage differentials and government corruption

Increasing government wages may substantially reduce corruption in relatively poor countries. Also in these countries, corruptible bureaucrats discriminate firms according to their industry’s average wage level in order to extract bribes. Firms in high-wage industries, therefore, face more red tape and spend more on corruption. Monitoring, detection and punishment of corruption should be focused on bureaucrats responsible for regulating high-wage industries
This thesis presents new evidence on the empirical relationship between government wages and corruption. Data on government wages are limited in both availability and quality. The mixed findings - in the past decades - on the impact of government wages on corruption may partly be due to the low quality of the underlying data. To deal with such a challenge, we construct a new database of industrial wages using micro survey data from a large number of developing and developed countries. The database is employed to investigate the relationship between government wages and corruption in a comprehensive manner.
Chapters 2 and 3 present the methodology and discuss the advantages of using micro-based survey data in estimating average wages at the aggregate level. A database of about 1,500 observations from 126 countries over a period of (on average) 12 years has been constructed and will be updated and expanded regularly in the future. Such data are better than the previously used data that were obtained from macro data sources, such as national accounts and government finance statistics. This is because the micro-based survey data yield unbiased estimates of the true wages. Chapters 4 and 5 show that government wages do have a negative impact on corruption, but the impact is significant only when the country’s income level is relatively low. Moreover, government bureaucrats in poor countries manipulate the level of red tape in high-wage industries to extract bribes. Monitoring, detection and punishment of corruption should be focused on bureaucrats responsible for regulating high-wage firms.