Public Sector, Bribes and Workers from the Unorganized Sector

Abstract

This paper grafts a measure of corruption in Shapiro and Stiglitz (1984) formulation. Bribe is calculated for the public sector employees in an economy where there are two organized sectors and one unorganized sector. Corrupt workers fall back to the self- adjusting unorganized wage if apprehended and fired from the public sector. We show that the level of bribe accepted by organized public sector employees fall when the probability of losing jobs in the organized private sector goes up while it rises as the lump-sum transfer (say, bonus) rises. This applies when the public sector seeks replacement for its dismissed workers from the unorganized sector. Conversely, if new jobs open up in the private sector, a rise in private bonuses may or may not raise the level of bribe in the public sector, among other results.