An Taoiseach’s Pay-Check

OireachtasIn order to succeed at politics, there are many random elements and factors out of the candidate’s control. There is no guarantee that, once successfully elected, the individual will rise through the ranks of the dominant party to become a Minster or even lead the government.

These two levels of uncertainty mean that pay incentives for senior figures in government are inappropriate. It would be much better to raise the basic pay of Dáil members.

For a member of the Dáil, the quality of their work is ensured by their dependence on votes to retain employment. In fact, the high wages for Teachtaí Dála (TDs) can be primarily justified as an incentive for individuals to enter politics.

Because there is inherent uncertainty that a worthy individual’s political career will be derailed by exogenous factors, doing your best may only increase the likelihood of success marginally. Suppose that 90% is determined by elements outside of your control.

Thus, you need extremely generous incentives to motivate individuals to maximise that 10% reliant on their own efforts. It better be a fraction of an extremely generous pie, especially given the amount of unpaid voluntary effort that those on the lower rungs of political parties must endure first.

Thus, we need to pay TDs extremely well to motivate talented individuals to enter politics. The alternative would be to find better ways of recognising and rewarding genuinely intelligent individuals within the political system, but that seems to have proven too difficult.

However, remuneration of senior government figures may not be such a motivating factor. Why is it necessary to grant former Ministers, Tánaistí and Taoisigh such generous pensions? After all, there are now two levels of uncertainty separating that payment with the decision to enter politics in the first place.

Once elected, there are already significant benefits that motivate basic TDs to seek senior positions. Apart from prestige and power, it increases their capacity for re-election. It might entail more effort, but does this really justify the inflated wage and pension differential at the top level?

It would be much better to attract a better base level of TD by raising their basic pay, recognising that the incentives created by generous senior level pay are fairly minimal because individuals recognise the uncertainty attached to them. By the time they are a realistic goal, non-financial incentives dominate the decision calculus.

Of course, it could be that the opportunity cost of government rises exponentially when one becomes Taoiseach, as speaking engagements and retirement become more attractive. But this still doesn’t explain the formidable pension bonus which is greater in absolute terms.

The alternative is that everyone who enters politics is extremely optimistic about their future. If every young politician envisaged themselves in senior level government positions down the line, it would make sense to hype up the payment afforded to them as targets to strive for.

Such cognitive bias explains why the vast majority of people consider themselves to be better-than-average drivers. Does everyone in politics believe they are more likely to succeed than average? If higher wages for senior government figures raises the incidence of this phenomenon amongst young people entering politics, that might explain why government economic forecasts tend to be so overly-optimistic too.

© The Free Marketeer 2009



2 Responses to An Taoiseach’s Pay-Check

  1. Sam says:


    Surely raising TDs wages further skews their incentives? We should run with the utopian ideal of entering politics for improving the public lot rather than a good salary and decent pension plan.

  2. thefreemarketeers says:

    Thanks for the correction.

    I don’t really buy that angle.. In fact, it might dangerous thinking in the long-term if politicians cut their pay too much for PR reasons. After all, people make value judgements about the worth (financial and otherwise) of professions at an early age. Politics should be something that all people should aspire too, regardless of motivation, to ensure the best candidates. Although I can see why you hold your view. It’s also dangerous when politicians don’t stand for anything, except what gets them voted in too.

    I might write something about that at some stage..

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