Closing the Revolving Door

86 Pages Posted: 21 Nov 2022 Last revised: 9 Aug 2023

See all articles by Joseph Kalmenovitz

Joseph Kalmenovitz

University of Rochester - Simon Business School

Siddharth Vij

University of Georgia Terry College of Business

Kairong Xiao

Columbia University

Date Written: November 11, 2022

Abstract

Regulators can leave their government position for a job in a regulated firm. Using granular payroll data on 22 million federal employees, we uncover the first systematic evidence of revolving door incentives. We exploit the fact that post-employment restrictions on federal employees, which reduce the value of their outside option, trigger when the employee's base salary exceeds a threshold. We document significant bunching of salaries just below the threshold, consistent with a deliberate effort to preserve private sector job opportunities. The effect is concentrated among agencies with broad regulatory powers, minimal supervision by elected officials, and frequent interactions with high-paying industries. In those agencies, 49% of the regulators respond to revolving door incentives and sacrifice 7.4% of their wage potential to stay below the threshold. Consistent with theories of regulatory capture, we find that revolving regulators initiate fewer enforcement actions and issue rules with lower costs of compliance. Using our findings to calibrate a structural model, we show that eliminating the restriction will increase the incentive distortion in the federal government by 1.7%. Combined, our results shed new light on the economic implications of the revolving door in the government.

Keywords: revolving doors, regulatory burden, bunching estimation, compensation incentives

Suggested Citation

Kalmenovitz, Joseph and Vij, Siddharth and Xiao, Kairong, Closing the Revolving Door (November 11, 2022). Available at SSRN: https://ssrn.com/abstract=4275137 or http://dx.doi.org/10.2139/ssrn.4275137

Joseph Kalmenovitz (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://sites.google.com/view/jkalmenovitz

Siddharth Vij

University of Georgia Terry College of Business ( email )

620 S. Lumpkin Street
Amos Hall, B324
Athens, GA 30602
United States

Kairong Xiao

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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