Fred Finnan and Claudio Ferraz's previous paper on audits (featured in Poor Economics) showed that voters, when given audit information about politicians, punish the corrupt ones and reward the honest ones. In this sequel paper, Electoral Accountability and Corruption in Local Governments: Evidence from Audit Reports, the authors find that electoral accountability in turn aids in disciplining politicians. Politicians who faced re-election stole 27 percent less than those who don't (since they face a term limit). These effects were more pronounced when the threat of judicial punishment was lower, showing that voters can be an effective substitute to a functioning judicial system.
What We're Reading
In writing Poor Economics, we relied on decades of work by development economics researchers. Naturally, that research continued after the book was published. The moment the book was finished, we wished we had waited a little longer so we could have included results from new studies. This page is a way of highlighting and archiving recent studies of interest to our readers. Occasionally, we will also provide updates about what we are working on.
07/14/2011
South Africa has very high unemployment: only 56 percent of prime-aged men and 40 percent of prime-aged women have jobs. Strikingly, very few people work in informal firms as compared to other developing countries. In his paper, High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa, Jeremy Magruder finds that centralized bargaining may be a factor.
Centralized bargaining, which is common in Europe, extends the outcome of a negotiation between unions and employers to all firms, regardless of whether they participated in the negotiations. These bargaining councils are at the center of a vigorous policy debate in South Africa: small firms argue that labor standards impose unfair costs; large firms argue that labor standards are not punitive; and union alliances argue that they are necessary for worker protection.
The paper shows that industries that have an agreement in a particular town in a given year have about 8-13 percent lower employment rates and 10-21 percent higher wages than the same industry in neighboring towns. Smaller firms are most affected.
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