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International Monetary Fund
This paper develops and tests two efficiency wage models of corruption in the civil service. Under fair wage models, civil service wages are an important determinant of corruption. Under shirking models, the level of wages is of secondary importance, as potential bribes dwarf wage income. The empirical evidence points to a negative relationship between corruption and wages across developing countries. Tests as to the validity of the two different efficiency wage models are inconclusive.
International Monetary Fund

assuming that civil servants can vary effort if necessary (civil servants will vary effort so that the utility of a government job is equal or greater than the utility of a private sector job). Two derivatives are of special interest to the empirical evaluation of the fair wage hypothesis, as we will see: the first derivative of corruption with respect to government wages, and the first derivative of corruption with respect to the probability of detection. Taking the derivative with respect to the government wage one finds: dC dW g

Ms. Caroline Rijckeghem

determines whether a worker is tempted to shirk (shirking hypothesis) or feels ill-treated (fair-wage hypothesis). Compared to GDP per capita, which is heavily influenced by the share of agriculture in GDP, the manufacturing sector has the advantage of being relatively comparable across countries in terms of skill-content. 8 The skill-content in the manufacturing sector is probably lower than that in government, so that it should not be considered as a measure of alternatives available to government employees. The aim is only to have a consistent benchmark. 9 To gain

Mr. Eswar S Prasad

previous work is that comprehensive reforms that influence both labor demand (by allowing for more flexibility in the dispersion of wages) and labor supply (by changing the disincentives for seeking employment) at the low end of the skill/wage distribution could be crucial for solving the structural problem of high nonemployment rates for low-skilled workers in west Germany. References Blau , David M. , 1991 , “ Search for Nonwage Job Characteristics: A Test of the Reservation Wage Hypothesis ,” Journal of Labor Economics , Vol. 9 , pp. 186 – 205

Mr. Eswar S Prasad
This paper provides new empirical evidence on the relationship between reservation wages of unemployed workers and macroeconomic factors--including the unemployment rate and generosity of the unemployment compensation system--as well as individual-specific determinants, such as human capital proxies and length of unemployment spell. The longitudinal dataset provides an interesting perspective on how reservation wages change over time and how they correlate with accepted wage offers for workers who move from unemployment to employment. The findings shed light on the disincentive effects of the German tax and transfer system for the employment decisions of unemployed workers at different skill levels.
Mr. Anthony R. Boote
The paper aims at assessing the capital needs of Eastern Europe in catching up to EC standards of living using the framework of a CES (constant elasticity of substitution) production function model. This function, parameterized on the EC, is assumed to apply with certain inefficiency factors in Eastern Europe in 1992. Quantitative results, given the heroic set of assumptions required, are bounded by large ranges. The approach provides a framework for assessing the factors which will determine the future capital needs in Eastern Europe and underscores the crucial role of efficiency gains in this process.
Mr. Anthony R. Boote

conventional wisdom that a lower level of per capita income is associated with a lower labor share. BIBLIOGRAPHY Artus , J. , “The Disequilibrium Real Wage Hypothesis - An Empirical Evaluation,” Staff Papers , International Monetary Fund , Vol. 31 , June 1984 . Borensztein , E. , and P. J. Montiel , “Savings, Investment and Growth in Eastern Europe,” International Monetary Fund , Working Paper No. 61 , June 1991 . CIA 1990 Handbook of Statistics . Collins and Rodrik , “Eastern Europe and the Soviet Union in the

International Monetary Fund

a fair wage system in Chad could identify ways to reduce compression ratios. References Akerlof , George A , Yellen , Janet. L. , 1990 “The Fair-Wage Hypothesis and Unemployment,” Quarterly Journal of Economics (US); 105:255-83 Devarajan , Shantayanan and Ritva Reitnikka , 2004 “Making Services Work for Poor People” Journal of African Economies, Volume 13 Supplement 1 , pp. i142- i166 Tanzi , Vito , 2000 , “The Role of the State and the Quality of the Public Sector,” IMF Working Paper, WP/00/36 ( Washington

International Monetary Fund

in effective units (i.e., old Länder equivalents) may not be the same. 7 This study is an extension of the earlier work on wage gaps found in: Artus, Jacques, 1984, “The Disequilibrium Real Wage Hypothesis: An Empirical Evaluation,”, Staff Papers , International Monetary Fund, Vol. 31 (June), pp. 249-302; Lipschitz, Leslie, and Susan M. Schadler, 1984, “Relative Prices, Real Wages, and Macroeconomic Policies: Some Evidence from Manufacturing in Japan and the United Kingdom”, Staff Papers , International Monetary Fund, Vol. 31, (June), pp. 303-338; and, more

Mr. Stabley W. Black

Mongolian economy hampered by all of these problems and stagnating with slow growth, as shown in Charts 5 and 6 . Whether and when further reforms will be adopted and carried out depends on Mongolian political decisions. References Artus , Jacques , “ The Disequilibrium Real Wage Hypothesis - An Empirical Evaluation ,” IMF Staff Papers 31 , June 1984 . Berg , Andrew , Eduardo Borensztein , Ratna Sahay , and Jeromin Zettlemeyer , “ The Evolution of Output in Transition Economies: Explaining the Differences ,” IMF Working Paper WP/99