Public Sector Personnel Economics: Wages, Promotions, and the Competence-Control Trade-Off
53 Pages Posted: 16 Dec 2016 Last revised: 8 Feb 2017
Date Written: October 15, 2016
We model personnel policies in public agencies, examining how wages and promotion standards can partially offset a fundamental contracting problem: the inability of public sector workers to contract on performance, and the inability of political masters to contract on forbearance from meddling. Despite the dual contracting problem, properly constructed personnel policies can encourage intrinsically motivated public sector employees to invest in expertise, seek promotion, remain in the public sector, and develop policy projects. However, doing so requires internal personnel policies that sort "slackers" from "zealots." Personnel policies that accomplish this task are quite different in agencies where acquired expertise has little value in the private sector, and agencies where acquired expertise commands a premium in the private sector. Finally, even with well-designed personnel policies, there remains an inescapable trade-off between political control and expertise acquisition.
Keywords: Personnel Economics, Public Sector Personnel, Human Capital
JEL Classification: H83, J24, J31, J45, K00
Suggested Citation: Suggested Citation