How Do Members of Congress React to the Potential of Lucrative Private Sector Employment?

Many fear that the potential for well-paid post-elective jobs can make legislators give rewards to their future employers. A new study finds that career prospects in the private sector do induce legislators to leave office and that US senators become more moderate before they voluntarily leave office through the revolving door. They also become more productive and more aligned with the priorities of special interest groups. 

 

 

 

The movement of public officials into the private sector is a pervasive feature of modern politics. Importantly, leaving office for private employment can be an extremely lucrative career move. One of the most striking examples of this is the post-elective life of Evan Bayh. After serving as the governor of Indiana, Bayh moved on to serve in the Senate. After decrying the extreme partisanship of Congress, Bayh chose not to seek re-election in 2010 and moved on to hold several positions on corporate boards. One of the interesting things about Bayh, however, is that in 2016, he chose to run for his former Senate seat, and, consequently, had to disclose his earnings. These disclosures showed that in 2015 and 2016, Bayh had earned in the excess of $6 million.

 

There are many cases like that of Bayh, where elected officials cash in on their political experience. The question is whether this is the general picturein other words, how many Evan Bayhs are there in Congress? Recent research by Ben Schneer and Max Palmer suggests that, among senators and governors, Bayh is not an idiosyncratic case: Serving in high public office makes it much more likely that a legislator will go on to hold one or more positions on corporate boards. This is part-time employment, through which the average former legislator earns two hundred thousand dollars per year.

 

Maybe because the move into the private sector can be so lucrative, the so-called revolving door between business and politics is a consistent cause for concern among academics and pundits alike. Many fear that the potential for lucrative post-elective employment can make legislators give rewards to their future employers. Based on these fears, calls for tighter regulation of the careers of former public servants are renewed almost every time a high-profile policy-maker spins through the revolving door. Importantly, these calls are often based on the notion that there is something inherently corrupt about legislators taking jobs with high salaries in their post-political lives.

 

However, the shady back-alley deal that many people envision when they think about the revolving door is not the only reason why the prospect of a private-sector career could matter for the behavior of our political representatives. Because the average politician can make so much money by transitioning into private sector employment, the revolving door holds the potential of shaping the very incentives facing career-concerned legislators.

 

Despite the obvious importance of the revolving door, there is little research on what employers gain from hiring former legislators, and whether lucrative career prospects affect the behavior of politicians while they are in office. In my dissertation on this topic, I examine why US senators come to desire private sector employment, how this desire shapes their legislative behavior, and what employers gain from hiring them. This is the first extensive empirical examination of how the revolving door can shape a wide range of political outcomesnot because of corrupt job-for-policy bargains, but because it shapes the incentives facing career-interested politicians.

 

Former US Senator Evan Bayh. Photo by Marc Nozell via Flickr [CC BY 2.0]

 

The Senators’ Behavior

 

Why is it that the prospect of a lucrative private-sector career could be expected to shape the incentives facing legislators? The best way the public can hold its representatives to account is by punishing them with their vote. And so, when legislators decide to leave office, they become unaccountable to voters. Therefore, soon-to-be revolversfree from re-election concernswill tend to behave in a manner that increases their labor market value.

 

However, not all former legislators are in equally high demand on the post-elective labor market, and the incentives should be particularly strong among the legislators that would make the least valuable employees in the private sector. Consequently, if it is true that the revolving door shapes the incentive structures that face legislators, the phenomenon holds the potential for shaping a much wider range of political outcomes than are normally considered in the public debate.

 

First, I have found that private-sector career prospects do indeed induce legislators to leave office. I show that when former US senatorswho now work as lobbyistsbecome more successful in their careers, currently serving senators with similar characteristics are more likely to leave office for private-sector employment. This strongly suggests that senators leave office when it is most lucrative to do so.

 

Importantly, not everyone reacts equally to the prospect of a successful private-sector career. In particular, the senators who have sponsored the most legislation and have worked the hardest to see it pass into law are the ones that are affected the least by outside career options. Because the “lure of the private sector” has the strongest effect on senators that have produced the least legislation, the revolving door can have important implications for the kind of legislator that remains in public serviceand, consequently, for the type and quality of representation that citizens receive.

 

This establishes that senators react to the prospect of a lucrative career in the private sector. This is the very foundation for the idea that the revolving door shapes the incentives facing legislators. We do not know, however, whether legislators change their behavior because of this.

 

To examine this, I start by presenting a new stylized fact: US senators become vastly more moderate before they voluntarily leave office through the revolving door. I show this relationship visually in Figure 1. The fully colored line tracks the ideological pattern of senator voting behavior before they leave office for a revolving door job. However, the faded line shows how senators who go on pension after leaving office vote. On the vertical axis, a score closer to zero indicates moderate voting, while a higher value indicates more. The measure captures extremism in both ends of the scale. That is, Democrats are at the extreme end of the scale if they vote in a very liberal manner, while Republicans get a high score when they vote very conservatively.

 

The results are striking: Senators who walk through the revolving door vote more moderately during their final two years in Congress. The change sets in abruptly during the final Congress and is larger than any shift that happens at other times. The senators that leave the labor market entirely, however, become much more extreme. Interestingly, the extremist shift among the retirees is so large that the moderation among revolvers looks very small visually. Both behavioral changes are very marked departures from previous voting patterns.  

 

 

Voting, however, is only one way the prospect of a lucrative career could shape the behavior of our political representatives. First, I show that before leaving office, revolvers exert more effort. They do so by introducing more bills and by working harder to see them passed. One of the ways they do this is by drumming up support among more co-sponsors. They also seem to work more closely with legislators from the opposing party. By most standards, these changes are positivethe revolving door seems to induce career-concerned legislators, as this signals their value as employees. However, I also find that they start voting in closer alignment with the preferences of the special interest groups that come to employ them. One important way of measuring this is by looking at the scores that the US Chamber of Commerce gives to senators. These scores are generally thought of as a measure of how well a senator votes in line with the preferences of the business community.

 

Importantly, I find that senators get higher scores from the Chamber of Commerce before taking revolving door jobs. This indicates that they not only become more moderate and sponsor more legislationthey also vote in closer alignment with the preferences of the business community.

 

I find that senators get higher scores from the Chamber of Commerce before taking revolving door jobs. This indicates that they not only become more moderate and sponsor more legislationthey also vote in closer alignment with the preferences of the business community.

 

The Stock Market implications 

 

Additionally, I have tracked the stock movements of the employers of the soon-to-be revolvers in the time immediately before and after their future employees (who are currently senators) sponsor new bills. This is illuminating, because it can inform us about how the market expects a given bill would affect the firm if the bill were to become law.

 

The results show that the firm’s stock market performance improves in the days immediately after their future employees sponsor new bills. It is important to note that this stock market reaction could be driven by a variety of factors. Most importantly, from these results we cannot gauge whether the improved performance comes about, because it is not unlikely that revolvers behave in a more pro-business fashion before leaving office, and that they change behavior to favor a pool of firms rather than a single employer. It strongly suggests, however, that there is something about the bills that revolvers sponsor immediately before they walk through the revolving door which would benefit their future employers.

 

Finally, it is important to note that not all senators change their behavior before walking through the revolving door. The behavioral change is concentrated among the ones who have produced the least legislation and generally worked the least to see the legislation pass into law: these are the people that would be the least valuable as a lobbyist.

 

Altogether, this suggests that the revolving does affect the incentive structure that legislators work within. In turn, this changes the behavior of career-concerned legislators. However, this is not necessarily undesirable from a normative perspective: While some special interest groups might gain from the final-term changes in behavior, the career incentives also induce revolvers. Furthermore, moderation among revolvers could counteract some of the extreme partisanship that is destabilizing American political institutions.

 

Benjamin CK Egerod is a PhD Candidate at the Department of Political Science, University of Copenhagen. He received the Stigler Center’s Dissertation Award for the year 2018/19.

 

The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.