• Public sector

Public sector & corruption

This paper analyses the relationship between low pay and corruption in developing countries, using studies from public hospitals in Latin America.One of the most important ways that pay can deter corruption is if it increases the penalty of being caught and dismissed. If an individual earns a premium in their job above what they would otherwise earn in another job, then that premium is at risk if that individual should commit fraud and be caught and dismissed.

A study of 33 hospitals in the City of Buenos Aires assesses if the premium paid to purchase managers above what they would otherwise earn in the labour market explains the different levels of corruption, and finds there is no statistical relationship between pay and corruption – even after making adjustments for hospital size, experience, and other factors

The study rejects the suggestion that there is no corruption in the hospitals based on several surveys and numerous interviews with patients, hospital staff, and administrators. It also rejects the possibility that purchase managers are unresponsive to financial incentives and suggests:

• the size of the earnings premium is unrelated to corruption because purchase managers are under very little risk of losing their jobs
• no purchase manager was ever fired, disciplined or even investigated during a period when the city’s Health Secretariat was collecting the price data that demonstrated large deviations from market prices

The paper concludes that:

• the level of pay that purchase managers receive is unlikely to deter them from committing fraud if they face no risk of losing their pay
• impunity undermines any impact that rewards or penalties might have on corruption
• low pay may contribute to corruption, however, without some form of monitoring to detect corruption and a real chance of penalties, raising wages is not likely to make a difference

A similar conclusion emerges from a study in Venezuela where it appears that the absence of effective monitoring and punishment for infractions undercut any potential effect that wages would deter corruption. The paper suggests that when policymakers choose to combat corruption in public services, they are most likely to be successful if they address low pay wage levels in combination with improving basic audit mechanisms and prosecution.

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