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 Has the economics profession repealed the laws of supply and demand?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)

Ian Kemmish

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"?

Paul Clapham

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?

Mr. MR

@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).


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


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.


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.


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!


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?



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.

William Waller

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.

Richard B.

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.

Michael Radosevich

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.


In mathematics and music some people exhibit prodigious early talent and if they can keep it all together, then they may grow into genius contributors to their field. That talent may be easy to spot. Is economics so black and white? If we take a group such as the Nobel Prize winners, did they all exhibit such early talent that they would today be an easy choice for a high initial salary? Does economics not have a group of contributors whose work just keeps growing and getting more and more profound until they finally hit the pinnacle of their profession?


WOW...that's good to know, especially when I applied as an economics major at two different universities in California. I guess everyone wants more economics teachers because those folks in a higher-up position than everyone else want the younger population educated in how to spend their money in better ways. Hopefully there will be more stress on an improving business field market, since the large corporations can set an example by turning eco-friendly and implementing better spending patterns.

Annes Kim

The competitive atmosphere for students entering into the economy business are presented in this article, as different people try to make their way into a successful career as economists. Although one would think that the recent recession would make the economist job less wanted, it actually has shot up as teachers for economics are being demanded.

robyn ann goldstein

Interesting in light of the success of Freakonomics. Now imagine, what if the apple that looks like an orange on the inside is really a hybrid (fuel efficient intellectual energy source). Would that up the demand of all profs (rt,left, hi, low) cashing in and especially the `unemployed' one who discovered it? Always fun to contemplate the future. Glad I don't have to rely upon the mere thought of it even though it too was predicted (not mine).