Corruption and Personnel Selection and Allocation in the Public Sector

We construct local-level statistical indicators of corruption based on the number of reported crimes, on citizens' trust in local public institutions, on perceptions of administrations' integrity and on the quality of public expenditure and we examine the impact that the presence of corruption, as measured by these indicators, has on personnel selection and allocation in the public sector. Using a difference-in-differences estimation strategy on Italian data, we find that the selection of public employees in terms of human capital worsens in comparison to that of their private sector counterparts in areas with higher levels of our corruption indicators. This effect is mainly observed among managers and highly qualified professionals. Moreover, corruption indicators are associated with the misallocation of human resources and, in particular, with an increase in the rate of under-qualification among public sector employees compared with the private sector. These results are robust to various indicators of corruption and to several robustness checks, including IV estimation that uses historical factors as an exogenous source of variation for current corruption