Working Paper: CEPR ID: DP5585
Authors: Yuriy Gorodnichenko; Klara Sabirianova Peter
Abstract: This study is the first to provide a systematic measure of bribery using micro-level data on reported earnings, household spending and asset holdings. We use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved (unofficial) compensation (i.e., bribes) of public sector employees. In the case of Ukraine, we find that public sector employees receive 24-32% less wages than their private sector counterparts. The gap is particularly large at the top of the wage distribution. At the same time, workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of non-reported compensation in the public sector. Using the conditions of labour market equilibrium, we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in Ukraine is between 460m and 580m U.S. dollars (0.9-1.2% of Ukraine’s GDP in 2003).
Keywords: bribery; corruption; public sector; ukraine; wage; wage differentials
JEL Codes: J3; J4; O1; P2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bribery accounts for at least 20% of total wage compensation in the public sector (D73) | monetary value between 460 million and 580 million US dollars (E42) |
| public sector employees receive wages that are lower than private sector counterparts (J45) | existence of unreported compensation in the form of bribes (M52) |
| wage gap persists after controlling for various factors (J31) | observed wage differentials can be attributed to the presence of bribery (J31) |
| wage gap is particularly large among the most productive workers (J31) | larger side payments (J33) |