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How much should politicians be paid? (Part 2 of 2)


Hasitha Jayatilake

By

October 16th, 2018


After analysing the politics of developing countries, Hasitha Jayatilake directs his focus to the economics of paying politicians in developed countries.


Part 1 of this series analysed how higher salaries could help attract more educated candidates to politics in developing countries, with a specific focus on Sri Lanka. While attracting competent candidates is as much a concern in developed countries, the general level of education among politicians tends to be higher in high-income countries (see figure below).

 

 

 

 

 

 

 

 

 

 

*Data sources for legislature data are specific to each country.[1]
**GDP per capita figures obtained from World Bank Open Data.[2]

 

Therefore, in analysing the politics of developed countries, Part 2 focuses on how politicians’ salaries impact other aspects of governance, including the attention paid to voters over special interest groups, and politicians’ commitment to parliamentary duties. While many useful findings are analysed in this regard, it must be noted that most of the key studies outlined here have based their research on US data, raising the possibility of a lack of generalisability. Conversely, some of the findings may also apply to developing countries where there is a similar dynamic between firms and policy-makers.

 

Improving Policy Outcomes

A common argument in the dialogue on politicians’ compensation is that higher benefits in office increase the cost of losing elections, thus creating a stronger incentive to work in voters’ best interests. What complicates the analysis is political contributions like campaign financing by firms. These could be used to bolster the image of potentially ‘bad’ policy makers, who act more in the interests of those firms than in the interest of the general population. This raises a question of whether a politician would undermine voters’ interests if they could credibly offset the impact on their image, with the campaign financing from the firms in whose favour they work.

Interestingly, a 2015 research paper by Stanford researchers Renee Bowen and Cecilia Mo, titled ‘The Voter’s Blunt Tool’, addresses this very situation by analysing the equilibrium outcomes that can occur in a system where large-scale political contributions by firms are commonplace.[3] Like many other economic studies on the subject, the paper frames the central problem as a situation where voters and firms are competing for influence over the decisions made by politicians.

The researchers explored whether the value of holding office (office-holding benefits) had any impact on the type of policies created by the legislature, by analysing panel data on the US. The measure used for the ‘value of holding office’ was the ratio of the salary of a state governor to the per capita income in the state. This reflects in monetary terms how valuable holding public office would be, relative to other forms of employment. The two policy outcomes analysed were income tax rates (higher income tax was coded to be unfavourable to voters) and minimum wage laws (with higher minimum wage coded to be favourable to voters).[4]

Quite interestingly, the data revealed that income-tax relative to corporation-tax had a negative relationship to office-holding benefits. Further, minimum wages were found to be positively correlated with governor salaries, meaning higher salaries for state governors were associated with a higher minimum wage. The researchers noted that, in general, voters’ inability to match contributions by firms to policy-makers made their tool of influence (the vote) a ‘blunt’ tool, in comparison to that of firms. Therefore, higher salaries for policy-makers acted as a lever to ‘bolster the value of the vote’.[5] This is consistent with the argument that higher office-holding benefits increases the cost of losing public office, making politicians more likely to pay more attention to voters’ concerns to ensure re-election.

However, as the researchers themselves acknowledge, there is a possibility of ‘reverse causation’, which cannot be entirely ruled out. It is said that there is ‘never a good time’ to increase politicians’ salaries.[6] The one exception may be when voters perceive that politicians have been making policies that are favourable to them, like raising the minimum wage or reducing income tax rates. So, it is conceivable that the observed increases in office-holding benefits occur subsequent to the voter-favourable policies, rather than the other way around.

 

Other Performance Metrics

Other studies have also found that higher pay may have a positive impact (that is, beyond the politicians’ own wellbeing). For example, a 2013 study by the University of Toronto, also using data on US politicians, found that higher salaries are likely to have a positive impact on legislative productivity – as measured by the number of bills passed – and missed roll call votes.[7] Increases in politicians’ salaries were found to be associated with a modest rise in the number of bills passed in the respective legislature. Although salaries were also slightly negatively correlated with missed roll call votes (a proxy for measuring attendance), the findings were statistically insignificant.[8]

On this note, another useful finding of the 2015 study by Renee and Mo (The Voter’s Blunt Tool) was that higher salaries for politicians were associated with more competitive elections.[9] This is particularly interesting, in light of the findings of another recent study that analysed elections in Italy. In their working paper, Galasso and Nannicini from the Bocconi University found that highly contested districts elect politicians who make fewer absences from parliament.[10] Galasso and Nannicini explain these results with the idea that parties compete with each other in the most contestable areas by selecting and allocating ‘good’ politicians’.[11]

Attendance at parliament and the rate of bills passed are important metrics to measure politicians’ performance and commitment to their work. Yet, unlike the 2015 study by Renee and Mo outlined previously, these metrics do not really capture the final outcomes of politicians’ behaviour in terms of actual policy making.[12]

Nonetheless, the modestly positive impacts seen on these performance metrics, as well as the increase in likelihood of ‘voter-favourable’ policies form a good foundation for the argument in favour of increasing the benefits of holding office. In the same vein, it is still important to note that increased salaries have not been found to have any particularly significant impact on the levels of corruption in studies on developed countries, despite the other positive outcomes observed.[13][14]

In general, increasing politicians’ office holding benefits tends to be a very politically unsavoury idea, even when it is a determined by an independent body like is the case in Australia, eliciting the common phrase that there is ‘never a good time’ to increase politicians’ salaries.[15] Nonetheless, if the general research findings on the issue as analysed here are any guide, increases in politicians’ salaries may in fact be more likely than not to result in better outcomes for electorates.

 

 

[1] Country Specific Data

USA: Manning, J 2018, Membership of the 115th Congress: A Profile: report to the Congressional Research Service, viewed September 18, 2018, https://fas.org/sgp/crs/misc/R44762.pdf
UK: Montacute, R & Carr, T 2017, PARLIAMENTARY PRIVILEGE – THE MPS 2017: report to the Sutton Trust, viewed September 18, 2018, https://www.suttontrust.com/research-paper/parliamentary-privilege-the-mps-2017-education-background/
Australia: Lumb, M 2013, The 43rd Parliament: traits and trends: report to The Parliament of Australia, viewed September 17, 2018, https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/43rdParl
India: PRS India 2014, Profile of the 16th Lok Sabha, viewed September 19, 2018, http://www.prsindia.org/media/media-updates/profile-of-the-16th-lok-sabha-3276/
Sri Lanka: Newsfirst 2017, Do SL parliamentarians have basic educational qualifications?, viewed September 19, 2018, https://www.newsfirst.lk/2017/05/24/167505/

 
[2] The World Bank 2017, GDP per capita (current US$), viewed October 2, 2018, https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?view=chart

[3] Bowen, R & Mo, C 2015, ‘The Voter’s Blunt Tool,’ Journal of Theoretical Politics, vol. 28, no. 4, pp. 655 – 677, doi:https://doi.org/10.1177/0951629815603495

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Hoffman, M & Lyons, E 2013, ‘Do Higher Salaries Lead to Higher Performance? Evidence from State Politicians’ Rotman School of Management, Working Paper No. 2345085, doi:http://dx.doi.org/10.2139/ssrn.2345085

[8] Ibid.

[9] Bowen, R & Mo, C 2015, ‘The Voter’s Blunt Tool,’ Journal of Theoretical Politics, vol. 28, no. 4, pp. 655 – 677, doi: https://doi.org/10.1177/0951629815603495

[10] Galasso, V & Nannicini, T 2011, ‘Competing on Good Politicians. American Political Science Review,’ vol. 105 no. 1, pp. 79-99. doi:10.1017/S0003055410000535

[11] Ibid.

[12] Bowen, R & Mo, C 2015, ‘The Voter’s Blunt Tool,’ Journal of Theoretical Politics, vol. 28, no. 4, pp. 655 – 677, doi:https://doi.org/10.1177/0951629815603495

[13] Hoffman, M & Lyons, E 2013, ‘Do Higher Salaries Lead to Higher Performance? Evidence from State Politicians’ Rotman School of Management, Working Paper No. 2345085, doi: http://dx.doi.org/10.2139/ssrn.2345085

[14] Benito, B, Guillamón, M, D, Ríos, A M, & Bastida, F 2018, ‘Can salaries and re-election prevent political corruption? An empirical evidence,’ Revista de Contabilidad, vol. 21, no. 1, pp. 19-27, doi:https://doi.org/10.1016/j.rcsar.2017.04.003

[15] SBS 2017, How much does an Australian politician earn now?, viewed October 2, 2018, https://www.sbs.com.au/yourlanguage/mandarin/en/article/2017/06/23/how-much-does-australian-politician-earn-now

Image: Jomar

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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