Executive Summary
A simple and universally accepted definition of corruption is the “abuse of public office for private gain”. Political scholars who devoted their life towards studying and analyzing corruption theories have concluded various causes that induce corruption, from both an individual and societal perspective. On of the main side effects of corruption, be it institutional, organization, or occurring in a public office, is that it weakens the intuitional system and create cynicism in the political life (Rose-Ackerman, 2004). This paper explores if and whether minimum wage is one of the trigger points for corruption.
Is there an inverse relationship between minimum wage and corruption? The paper explores the question; are individuals motivated to indulge in corrupt practices because they are not paid enough. If this premise is true, will raising the minimum wage solve the problem of corruption by deterring people from indulging in such actions? Even if there is a relationship between the wages paid to a civil servant and corruption, how much money or increase in corruption will stop an officer from being corrupt? Van Rijckeghem et. al., (2001) concludes in his research that wages almost have to be doubled, or sometimes more than double for a civil servant to stop engaging in corruption. That is a lot of money, and quite frankly even the richest of economies cannot afford to straight up double the pay of their officers. This paper seeks to answer some of these questions through a qualitative literature review of the research that has been done in this field.
Every person in any job that they work has an income target and a lifestyle that they aspire. When they fall short of it, they tend to look for other ways of earning it. In a corruption-conducive environment, either they are offered a bribe, or they see their colleagues taking advantage of a broken system and making more money, some individuals are tempted to be corrupt themselves. Most jobs pay an average individual at the minimum wage, and if the minimum wage is low and a person is unable to meet their basic needs within that minimum wage salary, they could be tempted to be corrupt and earn money the wrong way, by taking advantage of the system. Assuming this premise is true that minimum wage has an inverse relationship with corruption, the next question is how much of an increase in minimum wage will put an end to corruption. This is where there is a lot of disagreement between scholars. There are several scholars who argue both in favor and against of whether an increase in minimum wage will end corruption.
Theoretical studies such as Van Rijckeghem and Weder (2001) and UlHaque and Sahay (1996), state that an increase in minimum wage will reduce corruption, because a higher minimum wage, will increase government wages and that in turn will raise the cost of job loss due to corruption and make government employees feel that they are being ‘fairly’ treated, both of these will decrease the incentive to be corrupt. In developing countries, the youngers and fresh graduates of the country aspire more towards working for corporates and big private multi-national companies, and do not prefer government jobs only because those jobs don’t pay well enough. The best quality graduates don’t tend to choose government jobs, whereas, an increase in minimum wage and government pay scale will attract better quality individuals and prevent qualified government workers moving to the private sector, thus improving the government’s ability to control corruption. The impact of the minimum wage on employment is mixed. For employees with salaries close to the minimum level, this type of increase will lead to higher wages; however, those with the lowest wage rates will not find jobs and will become unemployed or they will find an alternative in the informal sector. There are multiple morality motivators for corruption. One being a lack of moral identification, i.e., an individual doesn’t believe that his actions are corruption. There are several reasons for this, from the fact that there may be a large number of people engaging in similar practice and hence it doesn’t feel that one is committing an immoral action. On the other hand, the definition of corruption itself is very different. Especially in a petty corruption scenario, both the individual giving the bribe and the individual receiving the bride want their job done, and feel no one is getting hurt in-between, and hence what they are engaging in is not wrong. In one way it is just seen as a business transaction, and this what happens in most developing countries where corruption is rampant. Corruption as a word is more associated with a larger sum of money, or something that has a larger impact at a higher level. (Bardhan, 1997). On the other hand, some theorists believe that increasing wages increases competitiveness, and while that can be a good thing it doesn’t necessarily stop people from involving in petty corruption. Also, these theorists believe that the incentive to be corrupt is psychologically motivated, either the individual thinks it is ok to accept bribes, or does so in pure greed of more money. Hence, people will be corrupt no matter what they get paid. Also, increase in minimum wages could ultimately cost the government more money that it cannot afford [Podobnik, B., Vukovic, V., & Stanley, H. E. (2015)]. There are multiple morality motivators for corruption. One being a lack of moral identification, i.e., an individual doesn’t believe that his actions are corruption. There are several reasons for this, from the fact that there may be a large number of people engaging in similar practice and hence it doesn’t feel that one is committing an immoral action.
When we really look into this concept that an increase in minimum wage can reduce corruption, it is harder to execute than it seems, because the next question is how much of an increase does it take to deter corruption. Scholars such as Besley and McLaren (1993) and Macchiavello (2008) suggest that higher government wages should not be used to combat corruption because it takes a lot of money, almost doubling the minimum wage at a time for it to actually deter individuals from accepting bribes, and help in reducing corruption. Hence, poor countries simply cannot afford it and, corruptible agents will crowd out highly motivated employees. Empirical findings from Van Rijckeghem and Weder (2001) shows that countries with higher minimum wages are less corrupt, but it is also important to state that empirical research and data is not as straightforward as it is. A closer look at the data by scholars who disagree on these points how that their samples, and variables are different. Hence, a lack of reliable data is probably the main reason for the controversy between the two belief system of the relationship between higher minimum wage and reducing corruption. Further, it is very hard to come to a cross-border conclusion when the data sets represent only one country at a time. The nature of corruption is different at different levels of economic development, hence, one empirical study leading to a conclusion that increase in minimum wage reduces corruption, does not necessarily prove true for other economies. This is the reason there is very little research out there that talks about cross-border aspects of corruption. Further, individuals working at minimum wages generally indulge in petty corruption. Petty corruption occurs at a base level, it involves very small amount of money, and it occurs so rampantly that the collective number worries the economy. The problem with petty corruption is that money involved is small and hence, not many people consider it corruption, or sever enough to report it. Hence, it is often ignored and immeasurable which creates a bigger problem. In high-income countries, petty corruption is less common because wages are above subsistence level. Corruption in these countries, if present, involves more secret deals, brings about larger payoffs, and is more difficult to detect. Government wages will arguably be less effective to combat the latter form of corruption. Basically, corruption as such is very difficult to measure, whether it is petty corruption or at a higher level. Besley and McLaren (1993) and Macchiavello (2008) states that by including an interaction term between government wages and economic development, we allow the impact of government wages on corruption to vary with the level of economic development. Controlling for a large number of other determinants of corruption and country specific effects, which are important because corruption changes very slowly and appears to be country specific. The estimated coefficient of government wages is negative but the coefficient of the interaction term is positive. This suggests that the role of government wages in reducing corruption decreases as countries become richer.
Most developing countries suffer petty corruption problems. Petty corruption weakens the institution in developing countries, reducing corruption has been a primary concern to economists and policymakers, and understanding this question is important for improving economic efficiency and outcomes. World Bank Global Issues Seminar Series defines Petty corruption as the action that involves the payment of comparatively small amounts of money to “facilitate” routine official transactions, such as customs clearance or the issuing of building permits. While the political corruption literature is often well identified, the literature on petty corruption of officials suffers from a lack of identification and questions about external validity outside the laboratory setting (Van Rijckeghem and Weder, 2001). the prevalence of small-scale “petty” corruption can contribute to the grand corruption problem, for two reasons. For one thing, corruption is often organized in networks, in which the low-level official demanding a bribe at the point of service might be required to give a cut of the bribes (or salary) to the next person up the chain, who might be required to do the same, and so forth. Thus, seemingly “petty” corruption isn’t an isolated occurrence, but actually feeds the whole system of corruption. In addition, tolerance of small-scale corruption may foster a culture of rule breaking. Consider psychologist Dan Ariely’s finding that mere exposure to a demand for a bribe (regardless of whether it was actually paid) makes people less honest, thus “degrading the moral character” of everyone involved. Corruption at any level legitimizes and normalizes wrongful behavior, threatening the rule of law and making anticorruption efforts all the more difficult (Steiner, 2017).
To discuss this concept more in detail, this paper evaluates the research presented by Foltz and Opoku-Agyemang, K. A. (2015), on the experiment by the Ghana government in 2010, when its doubled its police officer salaries to mitigate petty corruption on its roads. In 2010 Ghana began to move public officials to a new salary structure. The earliest and biggest beneficiaries were police officers, whose pay abruptly doubled. It was hoped that they would start behaving better as a result—and especially that they would stop extorting money from drivers at roadblocks. Opposite to what was concluded by Van Rijckeghem and Weder (2001), the Ghana government experiment stated an opposite corrupt outcomes that might occur independently of income levels and be worsened by a higher “appetite” that higher incomes would bring. Foltz and Opoku-Agyemang, K. A. (2015) stated that increase in wage, doesn’t necessarily reduce corruption but actually increases it because it given corrupt individuals a bigger appetite. The effect of an increase in minimum wage is unclear in countries that have a high proportion of low-wage earners, a high level of informality and relatively modest law enforcement.
Measurement problems in petty corruption
Petty corruption is very hard to measure. People who generally earn minimum wage involve themselves in petty corruption, and not at a level where they are in a leadership position. Nevertheless, these individuals form the major part of the society because they are the public themselves. This type of corruption destroys the economy from its roots, and hence is very important to identify and deal with [Kaufman, B. E. (2016)]. More number of individuals involve in petty corruption because it is “Speed money” and very difficult to measure (Bardhan, 1997). Bardhan (1997) explains that despite some scholars stating positive effects of petty cash corruption, i.e., sometimes corruption helps to overcome bureaucratic rigidities and maintain allocation efficiency when there is competition between bribers. Nevertheless, petty cash corruption tends to leave no room for the honest hardworking man who feel morally against corruption. For example, an honest police officer in a corrupt department trying to do his job with integrity will eventually fall into the trap and become corrupt. The side effects of corruption being lack of morale, and inequality amongst workers because of favoritism. This is the reason why police officers in Ghana were although paid double as what they were paid, still indulged in bribe taking because there was no other enforcement policy that deterred them form taking bribes. Even if two officers took bribes and made even more money, that motivates others to do it. It takes a string person with a backbone to actually stand up and say ‘no’ to bribe taking. While the literature is well defined on other types of corruption, not many authors venture to discuss petty corruption (Bardhan, 1997). The minimum wage does not follow a transparent mechanism and is based more on hidden interests (electoral interests, political interests, economic interest etc.). This makes it more difficult to identify petty corruption. Furthermore, increases in the minimum wage that are not connected to economic growth and labor market performance have created additional pressure on wage distribution by pushing low-skilled and youth workers into unemployment or informality. In such a situation, some scholars believe that it is more important to try and appeal anti-corruption practices at a more individual level, where it appeals a person’s moral beliefs, and that will stop them from involving in corruption. Small-scale corruption; the sort of corruption that ordinary citizens are most likely to experience directly in their own lives is particularly likely to undermine confidence in public institutions. That mistrust and suspicion can, in turn, have disastrous consequences. Small-scale corruption is often regressive, increasing economic inequality by siphoning resources away from poorer families. As Steiner (2017) stated although so-called “petty” corruption may not generate as many headlines as grand corruption, it has enormous significance to the daily lives of ordinary people and to society more broadly. Small-scale corruption harms people’s well being, increases inequality, degrades institutions, and helps feed other forms of corruption. The anticorruption community must ensure it’s paying attention not only to grand corruption, but also to the day-to-day effect of small-scale corruption on citizens’ lives.
Betcherman (2012) noted two perspectives associated with minimum wage. The first perspective relates to a “fair wage” and a social policy instrument, whereas the second implies that a minimum wage could attract employees with low productivity into the informal sector, thus negatively affecting those people who were meant to benefit from the policy. Therefore, the presumed effect of an increase in the minimum wage (at least for developing countries) is a reduction in formal employment followed by an increase in unofficial employment. The main consequence of this increase in the informal labor supply will be a decrease in the wages of this sector.
Petty Corruption and Reporting
If measurement is a problem, and hence affecting identification of corruption, the follow up issue is the reporting of corruption. Citizen reporting of corruption is one of the best ways to understand the problem in the institution. If the Ghanaian police officers knew the risk of citizen reporting their behavior, then they probably would have been ore careful in taking bribes from roadblocks. Most citizens do not report petty corruption because they do not have trust in the government for any solution. Further, the system of filing a complaint is often complicated and time taking and hence demotivates a responsible citizen from actually reporting an incident. For example, in India, prior to recent anti-corruption laws, police officers was quite confident that the citizens could not do anything about them taking bribes because there was hardly any reporting mechanism in place. The citizen feedback programs recently developed in several countries (especially in India), such as Punjab’s Feedback Model (one of the northern states in India), inspire the anti-corruption movement that occurred in the beginning 2002s However, in such programs, feedback is collected with the primary goals of guiding investigations against dishonest officials and administering sanctions. The program’s motive is to empower citizens with the ability to directly influence the pay of the officials they interact with. By exploiting citizen reports, the government is able to offer officials a high- powered incentive scheme that does not invite extortion. Whereas after recent anti-corruption policies that required every public office to have a mandatory anti-corruption cell and each complaint mandatorily had to be answered within 30 days otherwise there will be an inquiry into the officers delay and incompetency from an higher agency, made things far more stricter. Also, installation of road cameras in almost every traffic signal makes it harder for police officers to take bribes. The zero tolerance policy on corruption has actually reduced corruption in India.
The struggle against corruption includes the need to provide low-ranking Officials with the incentives to adequately perform their duty. Two issues, particularly salient in developing countries, give rise to this challenge. First, public officials often have large discretionary power: little transparency surrounds the decisions they make. Second, officials are rarely held accountable (e.g., because the judicial system is weak, or because supervisors are corrupt). As previous literature has emphasized, given such difficulties, even benevolent governments may have no choice but to tolerate corruption (Bishop, J. A., & Rodríguez, J. G. (Eds.). (2016).
To overcome these limitations, governments increasingly gather information from citizens at the receiving end of public services. In particular, a number of countries have recently implemented feedback schemes whereby users of public services can get complaints about government officials. This paper is in favor of a different but complementary approach to gathering information. Specifically, we make the case that communicating with citizens about their own behavior can also help in the fight against corruption. We show that allowing individuals or companies to report their failure to comply with rules (i.e., allowing them to self-report) and tying government official’s pay to these reports can prevent corruption in public administrations. A virtue of our self-reporting scheme is its simplicity: neither does it require the intervention of monitors or courts, nor does the government need to verify the accuracy of the reports.
Hence, the as discussed in the conclusion, the increase in minimum wage alone cannot reduce corruption, it has to be complemented by other enforcement factors like better reporting, monitoring and sanction mechanisms. For better reporting, citizens will have to trust that the government will do something about their complaint and make a just call as far as serving the public is concerned. This is the public trust doctrine. Lower public trust will reduce public reporting, and hence corruption increases.
Conclusion
From the above-cited research by various scholars it is clear that there is a relationship between minimum wage, public servant salaries, and corruption. However, the relationship is not comprehensive in terms of finding a solution. The empirical results presented in these papers suggest that fighting petty corruption cannot be done only by increasing minimum wage and salary policies. Rather, the increase has to be complemented by other factors such as proper enforcement, and more cohesive institutions that will ensure that individuals are not able to be corrupt. Anti-corruption policies must ensure proper monitoring and sanction mechanism that will reduce individuals from taking or giving bribes. Although, measurement of corruption is a problem. There is no one solution to it, and different economies have to cope with it differently.
One way to reduce the motive to be corrupt is the fact that that an economy must impose the seriousness of impact of corruption on public servants. For example, the idea that corruption is risky, and one can lose his/her job must be made serious. Going back to the 2010 Ghana case study, if the police officers had the fear that they might lose their job, and will not get another job, or may be suspended from service because of their corrupt actions, that might have stopped them from taking bribes, even after having paid a good salary. The fact that they we were paid well enough will present a bigger loss, so people will think twice before risking their good job. Mr Foltz and Mr Opoku-Agyemang, whose research was funded by the International Growth Centre at the London School of Economics, suggest that corrupt superiors or greedy relatives might have demanded more money from the officers. Another possibility is that the cops’ expectations went up. The pay rise may have boosted their sense of their own worth, leading them to demand more money. Hence, the necessity to have string leadership is important. If there are string leaders who keep a check on their employees and monitor their activities, then it is harder for someone to take bribes. In most petty corruption cases, the leaders are the perpetrators. They take a share of what the other individuals get, and sometime it is so bad that leaders induce even those who are strong and do not want to be corrupt to take bribes, or at least look the other way. Finally, the major problem is the public themselves who offer bribes to get their job done. They are in fact the bigger problem in the society. One of the effective ways of doing this is education, and awareness. When the citizens are aware that when they offer bribes they are creating a problem that ends up affecting citizens badly, because it is disapprobation of public money, they will develop a stringer sense towards anti-corruption. In conclusion, there are many ways to deter corruption at a petty level, and one country is different from the other. A nation must first of all identify the importance and the need for anti-corruption policies, and have a proper enforcement procedure.
References
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7. Kaufman, B. E. (2016). Adam Smith’s Economics and the Modern Minimum Wage Debate: The Large Distance Separating Kirkcaldy from Chicago. Journal of Labor Research, 37(1), 29-52.
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10. Foltz, J. D., & Opoku-Agyemang, K. A. (2015). Do higher salaries lower petty corruption? A policy experiment on West Africa’s highways. Unpublished Working Paper, University of Wisconsin-Madison and University of California, Berkeley.
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12. Steiner, J. (2017). “Petty” Corruption Isn’t Petty. The Global Anticorruption Blog. Law, Social Science, and Policy
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