The Higher Education Labor Market

Summary of working paper 8965
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The decline in the ratio of public pay to private pay makes it more difficult for public universities to hire and retain top faculty.

In the 1970s, projections of future university faculty shortages surfaced. Intrigued, scholars researched supply and demand of PhDs; however, the supply studies failed to address issues such as retirement behavior of faculty, academic versus non-academic employment, and time factors to complete PhD programs. And the demand studies failed to anticipate the growing university trend of part-time and adjunct faculty. Thirty years later, academic labor market issues are still in the early stages of study. In Studying Ourselves: the Academic Labor Market (NBER Working Paper No. 8965), NBER Research Associate Ronald Ehrenberg reveals some of his current academic labor market investigations and their findings.

For example, the salaries of faculty in public institutions have declined relative to the salaries of faculty in private institutions over the last two decades. In 1978, the average salary of professors at public research and doctorate granting institutions was 91 percent of the average salary at private research and doctorate granting institutions. By 1993, this ratio had fallen to 79 percent, where it has remained. Ehrenberg explores the forces behind that decline in salaries of public university professors, relative to their private institution counterparts, in work with Andrew Nutting. They use public and private institution data from 1973 to 1998 and study salaries by rank of professor for both public and private institutions, taking into account such things as endowments, tuition, and state appropriations per student. They find that between 50 and 60 percent of the change in the ratio of average public-to-private professor salary, at each rank, can be explained by differences in the change in real tuition levels. Private institutions' tuition levels have risen more in absolute terms than public institutions' tuition rates. Ehrenberg concludes that the decline in the ratio of public pay to private pay makes it more difficult for public universities to hire and retain top faculty.

Ehrenberg and Nutting also find that average faculty pay has become more unequal across universities, but the causes of the growing salary dispersion differ for private and public institutions. The vast majority of the growing salary dispersion across private institutions is attributable to the increasing dispersion of endowment wealth. Even if two institutions experience the same percentage increase in endowment growth, the university with the highest initial level of endowment per student will gain more absolutely in endowment per student and will be able to increase its average faculty pay by a greater percentage. The authors estimate that at the professor, associate, and assistant professor levels, about 75, 90, and 95 percent, respectively, of the increases in average faculty salaries at private institutions can be explained by the growing inequality of endowment wealth across private research universities. They suggest that for public research universities, the dispersion is caused by growing differences in both endowment per student and state appropriations. However, for all three ranks, endowment accounts at most for no more than 30 percent, with the majority of the differences caused by state appropriations. Ehrenberg writes, "The increased dispersion of average faculty salaries across institution in both public and private sectors suggests that it is becoming increasingly difficult for some institutions to attract and retain high quality faculty."

Ehrenberg reports that he and Michael Rizzo find that developments in science promise major advancements for society, in such areas as high tech health care treatments. Universities want to be leaders in these fields, so that they can attract top faculty, undergraduates, and graduate students, as well as increased funding for programs. What are the effects of the increased cost of scientific research on faculty salary and employment levels? While external support for research exists from government, corporation, and foundation funding, academic institutions now are bearing a greater share of the ever-increasing costs of research. It is more difficult to attract government money and grant makers are now pressuring universities to provide matching funds for research proposals they submit.

From 1971 to 1998, the percentage of research support per faculty member coming from universities rose from about 11 percent to 20 percent. The authors find no evidence that increasing institutional research funding affects salaries, but they do find evidence that research expenditures are associated with increases in universities' student/full-time faculty ratio. Controlling for factors including endowments, tuition levels, and state appropriations per student, the authors find that an increase in university funded research of $10,000 per faculty member is associated with an increased student/faculty ratio of close to one. Tuition increasingly is being used to subsidize research in the sense that a higher student/faculty ratio implies fewer courses offered, larger class sizes, more use of teaching assistants, or more use of adjunct or part-time faculty. The growing institutional expense of science may have crowded out things other than faculty, too, such as funding for travel and other perks.

-- Marie Bussing-Burks