The Demand for Econ Professors

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 Has the economics profession repealed the laws of supply and demand?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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  1. Ian Kemmish says:

    Or maybe it’s evidence supporting the old joke that in hard times, bursars like economists because they don’t need expensive colliders like particle physicists, or satellites like astronomers, or massive supercomputers like applied mathematicians, …. or waste paper baskets like pure mathematicians.

    By the way, what’s with all this “left” and “right”? What’s wrong with good old “up” and “down”?

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  2. Paul Clapham says:

    I don’t have an explanation of any kind, but that seems to me to be consistent with the process over the last couple of decades to give much higher salaries to the so-called “best” of a category.

    For example CEOs are now being routinely paid millions, where 20 years ago that would have been an exception. Professional athletes: need I say more? Lawyers: hopefully you haven’t had to pay for legal advice lately. You get the picture.

    So perhaps discussing the general case rather than what I think might be a specific example of it might lead more readily to an explanation?

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  3. Mr. MR says:

    @Ian Economists long ago decided to annoy rational thinking individuals and invert dependent and independent variables on the axes. One might think this was just to create an additional barrier-to-entry in their field and increase self-value (while creating confusion).

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  4. D says:

    Am I missing something? Grad students delaying entry into the market shrinks the supply of PhDs, no? Wouldn’t the supply curve shift left?

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  5. Doc says:

    An alternate explanation is that economists have discovered that they can do research and publish in finance and make very good (for professors) money in business schools. Those who follow that path are raising the value of economists per se.

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  6. Amy says:

    Here’s an alternative explanation: at the top universities,
    faculty are expected to bring in large research grants. In the physical sciences and engineering, for example, faculty at the top uinversities often raise several times their annual salary each year. Competition for the relatively few PhD’s who can do this is high. Those few PhDs prefer to go to top schools. This creates a bidding war for them among the top universities.

    At second- and third- tier universities, the pressure to raise money is less intense. Faculty are expected to bring match their annual salary in research grants. The pool of PhDs who can acheive this is substantially larger than the pool who can raise 5 times their own salaries. Consequently, they no bidding war for those faculty, and salaries are lower.

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  7. David says:

    Response to “– D” (comment #4) – it’s pent-up supply: if grad students rode out the worst of the recession in 2008-2010 by delaying their dissertation writing/defense, then there would be a bumper crop of them in 2011. Can’t hang on in grad school forever!

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  8. David says:

    Isn’t this just another example of the on-going bifurcation in wages both, across industries and within any given (high skilled) profession?

    Not only are incomes diverging across society, but within any given high-skilled profession, wages are diverging between those at the very top, who are earning very large differentials above the median, and the rest of the lot. Lawyers, doctors, engineers, investment bankers, football players, and now, apparently, economists.

    Perhaps it is the increased avenues for self promotion via the internet or electronic media that allows the elite earners to better market their inherent skills and separate themselves from the pack. Perhaps it is that the bundling personal technology – PCs and laptops in the 90s, the internet in the 2000s, etc. – with one’s human allows one to better leverage their human capital. Perhaps this is a nonlinear relationship. So the cream of the industry is able to secure gains that are an order of magnitude larger than the more garden-variety economist, lawyer, doctor, etc.

    What is it that differentiates the cream of the crop of new Ph.D.s from the average? Are their ideas more original? Are they better at marketing themselves with a blog, and creating the illusion that they are worth more? Or are they using technology to explore those ideas in profoundly original ways? Does their clever use of technology – either computing power or modeling or simple programming ingenuity – separate them much further from the pack than would be the case if ranking were based solely on the quality of their ideas alone?

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