>So, are professors really underpaid?
A few thoughts. When people say that teachers are underpaid I don't think that they
are mainly referring to professors. I think its K-12 where unfavorable comparisons
are often made between the salaries paid to BA teachers and HS grad semi-skilled
manual laborers. In fact, in a minute I will argue that there sense in which an
economist would say that these people may be thought of as underpaid (as may nurses).
In general I think that when one hears complaints about people being underpaid it is
because their earnings are low compared to what other people with similar credentials
are being paid. In my experience most people don't think in terms of markets setting
salaries. They think in terms of employers deciding what to pay and they think that
employers can pretty much pay whatever they want. Pay is viewed as unfair if it
doesn't reward the things that are supposed to be rewarded according to norms (talent,
education, and experience). Economists have very different views of the reasons why
people are paid for these things having to do with their scarcity and the cost of
acquiring the characteristic. Our view would have little to do with fairness.
However, I think that there is one place where the economists' view of what's "fair"
and the common person's view leads to similar conclusions. I would argue that in both
K-12 teaching and in hospital nursing the dominance of large institutions (often
government run) have led to a situation where monopsony is common. In the classic
monopsony, wages are set too low and the individual monopsonists are always
complaining about under supply.
Evidence: 1) You are always hearing about teacher and nursing shortages. 2) Public
schools do seem to set wages in a way which is typical of a price leader (quality
adjusted pay is lower than the private sector unless there is a union). 3) There is an
interesting study from a couple of years ago showing that market concentration in an
MSA in the hospital industry is negatively associated with nurses wages and 4) I've
had the personnel director for a large hospital in a major metropolitan area brag to
me that she was personally responsible for saving millions of dollars in health care
costs by coordinating the local cartel of hospitals to keep down nurses wages. Two
minutes later she was complaining bitterly about how hard it was to hire competent
nurses. When I asked her why she wouldn't think of raising wages I got the classic
collusive monopolist's answer. She said that in the short run they might get a few
more nurses, but that all the other hospitals would raise their wag!
es and in the end they would all be paying a lot more and overall they wouldn't get
that many new nurses. So here I would think that both the common person and an
economist would agree that in a very real sense these jobs are underpaid.
Are professors underpaid? If one thinks that there is chronic excess supply this
hardly seems arguable. The argument against this view is that there is also an
oversupply of aspiring NBA players, but that doesn't mean that current NBA players
aren't being paid the value of their marginal revenue product. Those who aspire may
not be able to perform at the level of the incumbents. One piece of evidence that
might suggest that low paid professors are indeed the victims of monopsony is that the
usual explanation for why economists, engineers, MDs and lawyers are paid more than
classics profs etc. is that there is a market for their services outside of academia.
Why should this matter (its obvious why if Universities exercise monopoly power)? It
costs the individual more to get a degree in classics than in economics (fewer
opportunities for relevant employment in grad school and fewer scholarships and
grants) and if anything economists have it easier than classicists (in terms of !
perqs), so why should they earn less in equilibrium unless there is monopsony? Is
being a classics professor that much more fun than being an economist? Or is it that
the skills to be an economist are in relatively short supply? I won't push this very
far mind you. The market for nurses and teachers is largely local because of career
co-location decisions while the market for Profs is national. The local nature of the
nurse and teacher markets makes monopsonistic coordination possible (the Personnel
director I talked to didn't take seriously the notion that high wages for nurses in
her city would attract more nurses "They're all married and they can't move." even
while she was willing to allow that there would be an increase in supply from "burnt
out" nurses reentering the field). -- Bill Dickens
William T. Dickens
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036
Phone: (202) 797-6113
FAX: (202) 797-6181
E-MAIL: [EMAIL PROTECTED]
AOL IM: wtdickens
