My Department chairman is mystified: You would think that with the crisis in public budgets, the demand for new economics faculty members would have shifted leftward. Similarly, with graduate students having delayed entry into the market, the supply of new Ph.D.s this year would have shifted rightward. Together, these changes should have lowered the price (wage) that the market pays new Ph.D.s.
But no — the wage at good schools for new economics faculty appears to be much higher than two years ago. Has the economics profession repealed the laws of supply and demand? My answer, of course, is no. Rather, with the prospect of little hiring and even shrinking faculty, economics departments have more incentive to stock up on the most promising young faculty to build their reputations. Competition for the very best students has increased, raising the wage at the upper tier of the market. Sadly, there is little substitution further down the quality scale: My students are not receiving higher pay than their recent predecessors. They are good students, but not at the very top tier of the new supply. Any other explanations? (HT: DS)
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I predict an economics bubble in the next few years. Economics is becoming over-valued.
I could be wrong, but I suspect that American higher education, as it is presently packaged and sold, is a ruse, along the lines of the folktale “Stone Soup.” “Your daughter has such promise! She’s simply brilliant! All we need to develop her to her full potential is a hundred thousand dollars, over four years. She”ll make hundreds of times that amount, in her brilliant career. And please keep in mind that in today’s ultra-competitive economy, young people without insanely expensive college degrees might as well go hang themselves from the nearest rafter, such are their prospects in life.” Perhaps Mr. Hamermesh remembers the old joke about economists: Economists are people who are good with numbers, but lack the personality to become accountants. Moreover, American economists have to operate in a climate of public opinion that is so hostile to the empirical method that they can best feed their families by selling themselves to “think tanks,” which of course are propaganda mills. As Robinson Jeffers wrote, “Shine, Perishing Republic.”
the salary for economists is paid by the university, not by the department. therefore, the department has little incentive to keep salaries low.
to justify high salaries, the department must present evidence to the university. they present the average market salary in the previous year. Because every university wants to beat the average, the average keeps rising.
the same thing happened with the price of dental services when everybody had to publish their prices and ceo salaries when they became transparent.
I think Salar has it partly right. In the UK at least,, conversations are going along the lines of: ‘Ok, you can only hire one prof in place of the two that are retiring’. So the Head of Department is going to want to get someone really great since they can only appoint one this year. And he can probably talk the university into paying this amazing new hire a really top salary, since he has already conceded the second post.
Interestingly I think something similar is happening in research grant funding: the overall pot is shrinking but funders seem keen to keep funding the really massive grants (maintaining some very high quality, high profile projects) at the expense of small and medium sized, lower profile ones.
Economics professors are retiring at a higher rate than new PhDs in economics who are looking for work in academics are entering the market for jobs. Moreover, economists are also hired by consulting firms, businesses, and government. During economic troubles these organization may have increased need for economists. So the demand from academic institutions is only part of the total demand for economists and much of the hiring is for replacement faculty.
Professors’ salaries are more of a measure of the university, and how it sees itself compared to its peers, than a reflection of the supply and demand of professors in a particular field. Each university wants to see itself as in the top tier of universities, and how they pay their professors is one measure of their standing. So while a university would certainly be able to fill teaching slots for lower wages (or even no wages at all!), the university would not want to be seen as offering less than its competitors, who would point to this criteria as to why they are a superior institution.
If lawyers and doctors – and yes, econ professors – had to compete with their counterparts around the world, wages would plummet to whatever the going rate is in India and China. The more than two billion people in India and China have to have more economists at the top of the heap than the 310 million people in the US, and don’t peddle any of that “American Exceptionalism” baloney.
But the system is gamed. We have “free trade” (but not fair trade) for factory workers and all blue-collar jobs, but lawyers, doctors, and econ professors are protected from competition. It’s part of our hybrid system – benevolent socialism for the upper classes, savage capitalism for the lower classes.
Hats off to Dean Baker for consistently making this point. Anybody who believes otherwise is just blowing smoke, believing in fairy tales spun by the Brothers Koch, not the Brothers Grimm.
#13 – your presumption is wrong: the number of faculty retirees is far less than the available supply of very good PhDs. Most programs have multiple graduates each year, so they far exceed the replacement rate.
As others have commented, the perception of “best” is what’s rare.