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Public Sector Salary Caps and the Careers of Public Managers

Author

Listed:
  • Edoardo Di Porto
  • Christian Dustmann
  • Chiara Giannetto
  • Lorenzo Incoronato

Abstract

This paper examines how salary caps affect retention and selection of managerial talent in the public sector. We exploit a 2014 reform in Italy that capped top public-sector salaries. Managers affected were about 5 percentage points more likely to move to the private sector. Exit propensity was especially high among executives of state-owned companies, while managers in traditional public administration largely remained in public employment despite substantial pay cuts. Exiting managers were positively selected, reducing average managerial quality in state-owned companies by about 2 percent. The reform generated modest fiscal savings of around 0.1 percent of public-sector labor costs.

Suggested Citation

  • Edoardo Di Porto & Christian Dustmann & Chiara Giannetto & Lorenzo Incoronato, 2026. "Public Sector Salary Caps and the Careers of Public Managers," RFBerlin Discussion Paper Series 26235, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26235
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    Keywords

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    JEL classification:

    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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