Are there wages from “sin”? Working conditions spillover from paying bribe in Vietnam

Abstract

This paper examines how bribe payment by enterprises in Vietnam affects employees’ working conditions, particularly wage benefits and other non-monetary compensations. We exploit the variation in the interaction of the score for the transparency of the local government in a specific province, the district-sector share of enterprises engaging in bribe payment, and the sector average size of the enterprise owner’s social network that are public officers as an exogenous variation in the likelihood of engaging in bribe payment. The results of the analysis reveal that when an enterprise pays bribe, it reduces the wages of its employees by approximately 27.6% (mostly for those within the highest wage bracket). Employees’ membership of a trade union, enterprise’ performance, capacity for inter-jurisdictional mobility, investment in human capital development, and formality status are likely operative channels of impact. Plain English Summary Enterprises’ engagement in bribe payment has negative impacts on the wages of employees. Corruption and bribe payment are endemic in many developing countries and they come at a cost to the broader society. Several studies have been conducted on how corruption impacts the welfare of individuals and households, the productivity, and effective and efficient functioning of firms and government, but we contribute to this debate by considering how bribe payment at the firm level affects employees’ welfare. We argue that bribe payment by an enterprise has potential effects on the wages and other non-monetary compensations of their employees. Depending on the size of the bribe and the profit level of the enterprise, bribe payment may reduce or improve an enterprises’ cash flow. In an event that the enterprise incurs a cost for paying bribe, it may transfer the cost to its employees by either cutting their wages or adjusting other pecuniary benefits that they receive. On the other hand, if the enterprise benefits from paying bribe, employees’ wages and other benefits could either increase as a spillover effect or remain unchanged depending on several factors, including the enterprise’s appetite for further bribe payment in anticipation of reaping more benefits in the long term. We use a unique dataset from the survey of Vietnamese small- and medium-scale manufacturing enterprises to validate these propositions and the channels through which they operate. The results of the analysis show that when an enterprise pays bribe, it reduces the wages of its employees (mostly for those within the highest wage bracket) by approximately 27.6%. Our result further shows that employees’ membership of a trade union, an enterprise’s performance and its capacity to move between different jurisdictions of operation, investment in human capital development, and formality status are the potential channels through which the identified impact operates. These findings support the need for anti-corruption policies, which could have other spillover effects on decent labor outcomes in Vietnam and other developing countries.