minimum wage in the administration and the corruption due to greed which according to Tanzi (1998) would not necessarily be affected by such a measure. In the same vein, Van Rijckeghem and Weder (1997) ascertain that in a weak institutional environment with low probability of punishment, the equilibrium wage level at which the self-interested officials are less motivated to extract bribes is high. In this case, the authors argue, governments are forced to pay the “low capitulation wage” attracting only self-motivated officials rather than increasing the wage to the level that would discourage bribery (but not necessarily completely eliminate it). We use **(the inflation rate)** as an indicator of the real wage deterioration of government officials which, we hypothesize, is positively correlated with the development of rent seeking behaviors. Further, in a situation of a growing youth unemployment rate, a high inflation rate that dampens the economic conditions of marginalized segments of the population (in particular those with no regular income) could provide an additional incentive for an unemployed job seeker to increase the odds of his recruitment by providing a bribe to the government agent in order to secure the job.

As an indicator of the labor market distortion, we consider the degree of rigidity of the hiring and firing regulations. This indicator captures how corrupt officials are tempted to collect bribes when selecting candidates for jobs offering enforced labor regulations such as higher minimum salaries or rigid rules for firing workers. In other words, all rules and regulations that are often seen as beneficial to the employees once recruited will be “monetized” and used by corrupt officials to “legitimize” his request for bribes before the position is granted to the candidate. The higher the protection imposed by local labor legislation, the higher the incentives for collecting the bribes and the higher the mismatch and distortion found in the labor market. To capture the institutional characteristics of the labor market, we use the **(Worker’s right)** index from the Human Rights Dataset (Cingranelli and Richards, 2010). This index is equal to 0 if workers’ rights are not protected and 1 if a full or fair protection is given to workers once hired.

Several papers have investigated the economic consequences of corruption on unemployment and the labor market in general through the channel of foreign direct investment (FDI). The theoretical view is that in a highly corrupt environment, foreign actors are more reluctant to invest and to create job opportunities in the local market (corruption increases the cost of doing business (often referred to as the corruption tax). This view has received empirical support from recent research. The perception among foreign actors that due to corruption, the allocation of domestic human capital toward the most productive economic sectors is inefficient constitutes an obstacle to the inflow of foreign capital in the economy. We use the variable **(FDI/GDP)** to analyze this hypothesis of the impact of capital inflows on the development of labor market dynamics in the presence of corruption practices.

Page | 11