Corruption and wages of public officials

In some countries, especially in Eastern Europe, corruption in educational institutions is a serious issue, to the point that diplomas do not mean anything. One potential reason for this high level of corruption is that educators and administrators are very poorly paid, and thus are more than willing to accept bribes to let students in, to let them pass exams and graduate. While the practice is well known and even accepted, how prevalent it is is obviously difficult to figure out.

Oana Borcan, Mikael Lindahl and Andreea Mitrut look at an interesting natural experiment in Romania: the wage of all public sector workers, including education, were cut by 25% in May 2010. The cut was unexpected and happened just before exams. They study the Baccalaureate exam, which is the exam at the end of high school, is the entrance ticket to university and is actually rather difficult. Comparing results in public vs. private schools (which where not affected by wage cuts) and 2009 vs. 2010, they find that public schools had suddenly a much higher grades (by one fourth of the standard deviation) and 10-12% more students passed the exams. And this despite the fact that students of all schools were mixed in exam rooms. This could only have happened if the public students knew beforehand what the questions or answers were. And indeed, this exam has the nickname of "Xeroxed exam" in Romania. And who gave them these copies? Well, consumption expenditures of teachers seem to have been unaffected by the wage cuts, according to the Romanian Household Budget Survey...