| Abstract: |
This study is the first to provide a systematic measure of bribery using
micro-level data on reported earnings, household spending and asset holdings.
We use the compensating differential framework and the estimated sectoral gap
in reported earnings and expenditures to identify the size of unobserved
(unofficial) compensation (i.e., bribes) of public sector employees. In the
case of Ukraine, we find that public sector employees receive 24-32% less
wages than their private sector counterparts. The gap is particularly large at
the top of the wage distribution. At the same time, workers in both sectors
have essentially identical level of consumer expenditures and asset holdings
that unambiguously indicate the presence of non-reported compensation in the
public sector. Using the conditions of labour market equilibrium, we develop
an aggregate measure of bribery and find that the lower bound estimate of the
extent of bribery in Ukraine is between 460m and 580m U.S. dollars (0.9-1.2%
of Ukraine’s GDP in 2003). |