Public Sector Salaries and the Quality of Governance: Evidence from Frontline Bureaucrats in India
96 Pages Posted: 21 Oct 2024
Date Written: September 12, 2024
Abstract
Bureaucrat salaries are the largest expenditure item for most governments. We examine the effects of an unconditional increase in bureaucrats' pay, by analyzing a policy change in Telangana, India, where one group of frontline bureaucrats experienced a 91% pay increase while another group of bureaucrats performing the same job did not. Using a difference-indifferences design, we show that, on average, higher salaries (i) had no impact on performance, (ii) did not affect dishonest or corrupt behavior, (iii) reduced quit rates by 2.4 percentage points (16%) after 2 years but did not affect selection as the average quality of bureaucrats in service remained the same. Higher salaries increased effort among bureaucrats who were unhappy about their pay, but decreased effort from top performers. Experts incorrectly predicted that higher salaries would improve both bureaucrat performance and selection.
Keywords: Bureaucracy, Panchayat Secretaries, Public Sector Pay
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