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The Politicians' Wage Gap: Insights from German Members of Parliament

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  • Peichl, Andreas

    (Ludwig-Maximilians-Universität München)

  • Pestel, Nico

    (Maastricht University)

  • Siegloch, Sebastian

    (University of Cologne)

Abstract

Using a unique dataset of German members of parliament with information on total earnings including outside income, this paper analyzes the politicians’ wage gap (PWG). After controlling for observable characteristics as well as accounting for selection into politics, we find a positive PWG which is statistically and economically significant. It amounts to 40-60% compared to citizens with an executive position. Hence, we show that the widely held claim that politicians would earn more in the private sector is not confirmed by our data. Our findings are robust with respect to potential unobserved confounders. We further show that the PWG exceeds campaigning costs and cannot be justified by extraordinary workload. Hence, our results suggest that part of the PWG can be interpreted as rent extraction. This calls for a reform of the regulation of outside earnings, which account for a sizeable share of the wage premium.

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  • Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2011. "The Politicians' Wage Gap: Insights from German Members of Parliament," IZA Discussion Papers 5520, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5520
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    Cited by:

    1. Geys, Benny & Mause, Karsten, 2011. "Moonlighting politicians: A survey and research agenda," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2011-101, WZB Berlin Social Science Center.
    2. Peter T. Calcagno & Meg M. Montgomery, 2021. "The gender wage gap: an analysis of US congressional staff members," Public Choice, Springer, vol. 188(1), pages 183-201, July.
    3. Auerbach, Jan, 2022. "Productive Office and Political Elitism," MPRA Paper 114582, University Library of Munich, Germany.
    4. Arnold, Felix & Kauder, Björn & Potrafke, Niklas, 2014. "Outside earnings, absence, and activity: Evidence from German parliamentarians," European Journal of Political Economy, Elsevier, vol. 36(C), pages 147-157.
    5. Antonio Estache & Renaud Foucart, 2016. "Corruption and Incompetence in Public Procurement," Working Papers ECARES ECARES 2016-05, ULB -- Universite Libre de Bruxelles.
    6. Bernecker, Andreas, 2014. "Do politicians shirk when reelection is certain? Evidence from the German parliament," European Journal of Political Economy, Elsevier, vol. 36(C), pages 55-70.
    7. Polk, Andreas, 2017. "Lobbyism in Germany: What do we know?," Beiträge zur Jahrestagung 2016 (Witten/Herdecke) 175190, Verein für Socialpolitik, Ausschuss für Wirtschaftssysteme und Institutionenökonomik.
    8. Jan Auerbach, 2018. "Office-Holding Premia and Representative Democracy," Discussion Papers 1802, University of Exeter, Department of Economics.
    9. Berg, Heléne, 2020. "Politicians’ payments in a proportional party system," European Economic Review, Elsevier, vol. 128(C).
    10. Björn Kauder & Manuela Krause & Niklas Potrafke, 2018. "Electoral cycles in MPs’ salaries: evidence from the German states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 981-1000, August.
    11. Bernardino Benito & Francisco Bastida & Ana-María Ríos & Cristina Vicente, 2014. "The causes of legal rents extraction: evidence from Spanish municipalities," Public Choice, Springer, vol. 161(3), pages 367-383, December.
    12. Maria M. Campos & Domenico Depalo & Evangelia Papapetrou & Javier J. Pérez & Roberto Ramos, 2017. "Understanding the public sector pay gap," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-29, December.
    13. Heléne Berg, 2018. "Politicians' Payments in a Proportional Party System," CESifo Working Paper Series 7278, CESifo.
    14. Berg, Helene, 2018. "Politicians’ Payments in a Proportional Party System," Research Papers in Economics 2018:3, Stockholm University, Department of Economics.
    15. Lukasz Wiktor Olejnik, 2019. "Do coalition councillors grow rich faster? Quantitative analysis of asset declarations," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(1), pages 47-60, March.
    16. Karsten Mause, 2014. "Self-serving legislators? An analysis of the salary-setting institutions of 27 EU parliaments," Constitutional Political Economy, Springer, vol. 25(2), pages 154-176, June.
    17. Schötz, Lukas, 2016. "Power and rents - political influence on rent extraction: Quasi-experimental evidence for Bavaria," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-70-16, University of Passau, Faculty of Business and Economics.
    18. Estache, Antonio & Foucart, Renaud, 2018. "The scope and limits of accounting and judicial courts intervention in inefficient public procurement," Journal of Public Economics, Elsevier, vol. 157(C), pages 95-106.

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    More about this item

    Keywords

    political rents; citizen-candidate model; descriptive representation; politicians' wage gap; outside earnings;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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