The Personnel Economics of the State

50 Pages Posted: 28 Dec 2015 Last revised: 7 Jan 2016

See all articles by Frederico Finan

Frederico Finan

University of California, Berkeley - Department of Economics; IZA Institute of Labor Economics

Benjamin A. Olken

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Society of Fellows

Rohini Pande

Harvard University - Harvard Kennedy School (HKS)

Date Written: December 2015

Abstract

Governments play a central role in facilitating economic development. Yet while economists have long emphasized the importance of government quality, historically they have paid less attention to the internal workings of the state and the individuals who provide the public services. This paper reviews a nascent but growing body of field experiments that explores the personnel economics of the state. To place the experimental findings in context, we begin by documenting some stylized facts about how public sector employment differs from that in the private sector. In particular, we show that in most countries throughout the world, public sector employees enjoy a significant wage premium over their private sector counterparts. Moreover, this wage gap is largest among low-income countries, which tends to be precisely where governance issues are most severe. These differences in pay, together with significant information asymmetries within government organizations in low-income countries, provide a prima facie rationale for the emphasis of the recent field experiments on three aspects of the state–employee relationship: selection, incentive structures, and monitoring. We review the findings on all three dimensions and then conclude this survey with directions for future research.

Suggested Citation

Finan, Frederico and Olken, Benjamin A. and Pande, Rohini, The Personnel Economics of the State (December 2015). NBER Working Paper No. w21825. Available at SSRN: https://ssrn.com/abstract=2708711

Frederico Finan (Contact Author)

University of California, Berkeley - Department of Economics ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Benjamin A. Olken

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States
617-253-6833 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-1407 (Phone)

Harvard University - Society of Fellows

Cambridge, MA 02138
United States

Rohini Pande

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-384-5267 (Phone)
617-495-2575 (Fax)

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