The Frontier Centre has released a backgrounder today entitled CEO Compensation, Politicians’ Salaries, and NHL Players. The author of the paper is Steve Lafleur, a policy analyst with the Frontier Centre.
The backgrounder examines the relationship between politicians salaries and policy outcomes. To put the issue in context, the backgrounder starts out by drawing a parallel between compensation for Corporate CEOs and NHL players.
Building on an essay by economist Mike Moffat, the author points out that most people can accept high salaries for NHL players because they understand the competitive necessity of paying to acquire top talent. While many Canadians are reticent about applying the same logic to corporate CEOs, the economic case is even stronger.
However, that logic is rarely applied to politicians. It should be. Studies from several countries provide evidence that higher salaries attract better candidates, and better public policy.
A study of Italian mayors found that higher paid mayors “lower taxes and tariffs per capita (by about 13% and 86%, respectively) and reduce the amount of personnel and other current expenditures (by about 11% and 22%, respectively).
A 2004 study in The Journal of Law & Economics found that US governors receive a 1 per cent pay cut for every 10 per cent per capita tax increase. They also found that governors tend to receive a pay increase of 4.5 per cent for every 10 per cent boost in per capita income.
While the above studies only deal with high profile political executives, studies from Brazil and Finland found that higher salaries attract candidates with higher average education levels. Though higher education does not necessarily make better politicians, expanding the pool of talent from which legislatures and city councils draw is generally a good thing.
The evidence isn’t as strong for paying high salaries to MPs and city councillors as it is for premiers and mayors, but the downside is negligible. The federal government spends nearly $300 billion annually. It’s worth spending a trivial amount of extra money to ensure that we maximize the quality of MPs.
The full report, High Wages Attract Better Politicians, may be viewed here: