Dec 7, 2011

Did higher salaries result in an adverse selection of politicians at the EU parliament?

A while ago, I argued that one reason the UN in Geneva was ineffective was that the high salaries it offered resulted in an adverse selection of workers, motivated by luxury rather than by the work itself. But I had no data to back my claim. Now Ray Fisman et al. come in with a new paper quite supportive of my claim.

They examine the labor supply of politicians in the European Parliament where the introduction of a law equalized salaries, which had previously differed by as much as a factor of ten. They find that:
  • Doubling an member of parliament's (MP) salary increases the probability that she runs for reelection by 21 percentage points
  • A salary increase, however, lowers the quality of elected MPs, measured by the selectivity of their undergraduate institutions. 
  • Higher pay does not affect effort, measured by legislative sessions attended while in office.

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