Posted Tuesday, Feb. 28, 2012, at 7:22 AM
Raymond Fisman, Nikolaj Harmon, Emir Kamenica, and Inger Munk report on the impact of salary changes on the labor supply of Members of the European Parliament:
We examine the labor supply of politicians using data on Members of the European Parliament (MEPs). We exploit the introduction of a law that equalized MEPs' salaries, which had previously differed by as much as a factor of ten. Doubling an MEP's salary increases the probability of running for reelection by 23 percentage points and increases the logarithm of the number of parties that field a candidate by 29 percent of a standard deviation. A salary increase has no discernible impact on absenteeism or shirking from legislative sessions; in contrast, non-pecuniary motives, proxied by home-country corruption, substantially impact the intensive margin of labor supply. Finally, an increase in salary lowers the quality of elected MEPs, measured by the selectivity of their undergraduate institutions.
It's a very interesting subject that I'm not aware of much study on. The European Parliament is a pretty unusual legislative body so I wouldn't assume that these results generalize to anywhere but it would be good to see more research of this kind of issue. Quality of governance is a huge issue and it's well worth investing extra salary dollars in order to get it, but that's only the case if higher pay really does get you higher quality.