Higher Salaries Can Worsen Corruption

For economists, it is borderline redundant to say that corruption has economic origins—classic and contemporary work has long held the belief that higher salaries are better for corruption. Due to the obvious difficulties of doing real policy reform in developing countries however, researchers and policy makers have seen little evidence that sheds light on this statement; especially in African countries where salaries are often low and where corruption is still a great concern.  

Based on my ongoing research jointly with Jeremy Foltz, I believe that higher salaries can actually worsen corruption.

Petty corruption in West Africa stifles economic activity on transportation highways. Ironically, these roads were created to allow countries like Ghana and Burkina Faso to reap the celebrated benefits of international trade. However, while economists tend to spend much effort—as we should—on tariffs, quotas, and other economic barriers, petty corruption is teaching us that trade barriers can be political as well.

The problem is that police and customs officials as well as others extort bribes from drivers as they travel to and from ports, often exploiting the fact that to be a commercial driver is nearly synonymous with being in a constant hurry to reach a destination.
For drivers, the easier option to save time is to grit their teeth and comply just to get past the stop—and then likely to face the familiar feeling of disappointment at the next one. An official might ask for a little gift or “dash,” another for a little something to prevent the wind from blowing the driver’s license out of the officer’s hand. Whatever the colorful expression, Ghanaian citizens have always known that low standards of living may have helped petty corruption to gain traction over time. Ghanaian governments have been trying to set up reforms to help improve the welfare of police officials with much difficulty over the years.

All of a sudden, on July 1, 2010, it became a great thing to be a policeman. Thanks to a new policy reform, the salaries of police doubled overnight. As one can imagine, not everyone in Ghana was happy about this—several unions across the health and other public services demonstrated and threaten to strike in response. It was believed that this very generous policy would rule out the collection of bribes on the highway and render them unnecessary. This logically-consistent proposal gained traction as much of the country hoped that at least this good would come of the policy.

For non-police officials in Ghana as well as officials in Burkina Faso, the absence of raises allowed us to see what the policy change meant for bribery in a simple quasi-experiment. Using surveys given to truck drivers traveling on the route linking Ouagadougou, (the capital of Burkina Faso) to Tema, (a main port in Ghana), we analyze detailed information on what amount was given to what official, and how long a bribe encounter lasted. Since our data enveloped the salary policy, we could explore what effect the initiative actually had on bribe behavior and outcomes.

To our surprise we found the opposite of what most Ghanaians we talked to—and to be fair, much economic theory--anticipated. Not only did the police spend more time shaking down drivers after they received higher salaries, but they took significantly more money after receiving higher wages. Instead of leading to a more (if the reader would permit us) civil police force, the higher salaries seemed to give them a higher appetite for corruption. Although we were initially encouraged to spot a parallel increase in the number of trucks that didn’t pay bribes, we were disheartened to realize that bribery  did not actually change. This was partly because the police salary change also increased the number of road stops on the highway. Arguably worse, the aggregate bribe cost of the trip significantly rose following the salary increase.

At the World Bank ABCA 2015, one thing which appeared to resonate with the audience was the sad fact that the drivers in our data had all their papers in order every time. So any amount extorted couldn’t be explained by being the fault of the driver in any way. The ABCA audience also seemed to agree that a critical missing piece was having stronger institutions and monitoring environments for the police.

Instead of a straight-forward conclusion, petty corruption raises an interesting policy dilemma: should corrupt officials be paid properly because it is the right thing to do, or should the negative consequences be kept in mind as well?
Although more research is needed to move this discussion forward, we believe that policy makers in Africa would do well to think about the problem more holistically.

This is the first in a series of guest blog posts based on papers presented at the Annual Bank Conference on Africa 2015: Confronting Conflict and Fragility in Africa.