Public Sector Salary Caps and the Careers of Public Managers

Edoardo Di Porto, Christian Dustmann, Chiara Giannetto and Lorenzo Incoronato

No 26235, RFBerlin Discussion Paper Series from ROCKWOOL Foundation Berlin (RFBerlin)

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.

Keywords: salary caps; public managers; public-private mobility; state-owned companies (search for similar items in EconPapers)
JEL-codes: H83 J31 J45 M52 M54 (search for similar items in EconPapers)
Date: 2026-09
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