Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service

Abstract

We study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized. Screening relied on exams designed to measure applicants' intellectual ability, personality, and motivation. This allows the first experimental estimates of (i) the role of financial incentives in attracting a larger and more qualified pool of applicants, (ii) the elasticity of the labor supply facing the employer, and (iii) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities. A theoretical model guides each stage of the empirical inquiry. We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity towards public sector work -i.e., we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities.

Firms and Labor Market Inequality: Evidence and Some Theory

“…More research is needed applying (quasi-)experimental research designs that convincingly tease out the mechanisms through which rm shocks are transmitted to workers. Another outstanding goal is the development of studies that directly manipulate incentives for workers to leave and join particular rms, as in the innovative experimental design of Dal Bó, Finan, and Rossi (2013). Such designs can be used to rigorously assess the degree of bias in observational rm switching designs.…”

The Lemons Problem in a Labor Market with Intrinsic Motivation - When Higher Salaries Pay Worse Workers

“…Thus, all else being equal, the higher the worker's vocation, the higher the total bene…t from the job in the vocational sector. 13 We instead extend their analysis considering asymmetric information on both characteristics of potential applicants. From inequality (1), we observe that potential workers with low productivity are more likely to accept the job (the well-known adverse selection problem on productivity), and potential workers with high vocation are more likely to accept the job, as …rstly discussed in Heyes (2005) and in Delfgaauw and Dur (2007).…”

“…Intuitively, as the wage increases, more skilled workers become interested in the job; on the other hand, less motivated candidates apply for the job when there is a negative statistical association between productivity and vocation or when the two characteristics are independently distributed. This "intuitive case" indeed shows that, in order to attract more highly skilled applicants, higher wages may be necessary; but this comes at the cost of attracting less motivated workers (see, among others, also Dur 2010 andDal Bò et al 2013). However, we show that two "counter-intuitive" and mutually exclusive cases can also emerge in the case of a positive statistical association between productivity and vocation.…”

“…Intrinsic motivation is interpreted as a bene…t accruing to workers'utility when employed in a vocational sector, unrelated to workers'e¤ort or output (see also Heyes 2005, Delfgaauw and Dur 2010and Dal Bò et al 2013. A "vocational labor market" is thus a sector where motivated workers receive a "vocational premium", whereas a "standard labor market" is a sector o¤ering no vocational premium.…”

Incentives for prosocial activities

“…For example, activities such as pro-environmental behavior, healthrelated work, the willingness to become a public servant, as well as teaching in schools were considered hard to motivate other than through the intrinsic predisposition of individuals. The evidence, however, is proving that these concerns are unfounded [7], [8], [9], [10].…”