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The Role of Financial Incentives in Recruiting Public Sector Employees

Development Challenge

The ability and integrity of civil servants can have important consequences for the lives of the poor. The effective provision of public goods and services, such as free primary education or basic healthcare, is largely determined by the aptitude of the responsible civil servants. Given these agents’ importance for poverty reduction, the question arises: what makes a high-quality candidate for civil service, and how do we attract these qualities to the public sector? Higher wages may be necessary to attract higher quality applicants, but does it come at the expense of attracting an applicant pool that is less motivated by public service? If public service motivation is a significant determinant of public sector job performance, as the literature suggests , providing higher salaries may not help to improve the capacity of the state.

Context

The analysis is based on a federal government program in Mexico, called the Regional Development Program (RDP), which was designed to increase the presence of the state in Mexico's most marginalized municipalities. Compared to other municipalities in Mexico, the 167  municipalities included in the RDP fared much worse by virtually any measure of socioeconomic development. Income per capita was almost half that of other municipalities, while infant mortality was 50 percent higher. The presence of drug cartels was also a concern for these areas.  In order to improve service delivery within these communities, RDP aimed to build a network of around 50  coordinators who would supervise an even larger network of 350  community development agents. These public agents were supposed to embed themselves in the local communities and identify areas where public good provision is deficient, and then work with existing public programs as well as local authorities to remedy such deficiencies. To hire these agents, the RDP conducted a recruitment drive between June and August of 2011.

Evaluation Strategy

This study attempts to analyze the impact of financial incentives and characteristics of the work environment on attracting qualified applicants to the public sector. During the summer of 2011, job postings for RDP were sent out to 113  community colleges throughout Mexico. When an applicant called to apply, a telephone operator would register the candidate and communicate the salary attached to the job. The salaries communicated were randomly assigned based on locality, with 65 out of 106 localities  announcing a wage of 5,000 pesos  (approximately US$500)  per month and the remaining 41 localities  announcing a wage of 3,750 pesos (approximately US$375 )  per month.

All registered applicants were then administered a three-hour  exam designed to measure three broad categories of personal characteristics: aptitude, personality traits, and motivations or inclinations towards public sector employment . Personality was primarily measured based on the standard “big 5” personality traits: openness to experience, conscientiousness, extroversion, agreeableness, and neuroticism , as well as several measures of ‘pro-social activities such as volunteering, charity work, and political participation .

The data collected from the exam was then used to separate applicants into four groups:  

  1. High wage announcement and high IQ
  2. High wage announcement and normal IQ
  3. Low wage announcement and high IQ
  4. Low wage announcement and normal IQ

Each of the 350 job vacancies  was then assigned to one these four groups. Applicants were then randomly selected to fill each vacancy conditional on type and region of residence.

Results and Policy Implications

Effects of financial incentives on applicant pool: The high wage offering was associated with an increase of nearly 26 percent  in the number of applicants per site, although this result was not statistically significant. Higher wages did attract individuals with significantly higher quality as measured in terms of previous occupational achievement and IQ. The previous salaries of applicants in places with the high-wage announcement were on average 820 pesos (US$80) higher than applicants in the low wage places; a difference that represents a 22 percent increase from the average among the comparison group (the low-wage announcement). In places where a higher wage was announced, applicants were also much more likely to be currently employed, to have had work experience, and to have been previously employed in a white collar position. The higher wage announcement also attracted individuals who scored, on average, 0.2 standard deviations higher on the IQ test.

Higher wages also attracted individuals with more desirable personality traits, specifically individuals who were more conscientious, less neurotic, and more open to new experiences.  The high wage offering did not lead to a pool of less publicly-motivated applicants. Applicants in the high wage sites scored higher on the public service motivation index than applicants from the lower wage sites. Relative to those in the low-wage sites, applicants who applied in the high-wage recruitment sites found policymaking more attractive, were more compassionate, and had a stronger belief in social justice.

Effects on financial incentives on filling of vacancies: Higher wages not only attract better candidates, but they also increase the ability to fill vacancies. The higher wage offer increased the acceptance rate by 15.1 percentage points, or around 35 percent.  

Distance to the municipality, drug violence in the municipality, and the municipality’s degree of human development (as measured by the Human Development Index) were also important considerations for job applicants.  However, a higher wage rate largely compensated for the less desirable job conditions. For example, while an extra 10 kilometers of commuting distance reduced acceptance rates by 2.7 percentage points for those offered the low wage, it had virtually no effect on the acceptance decisions of those offered a high wage. Similar results were seen with respect to drug-related deaths and the Human Development Index.

Timeline

2011