World class delusions [Updated]

Countries with inferiority complexes talk about how their stuff is "world class". Restaurants, attractions, whatever.

There's been a bit of hand-wringing lately about whether our universities really are "world class". I'd suggested that one solution might involve shutting down a couple of the worse-performers and concentrating resources in the better ones. Stuart Middleton takes it a step further and says we should concentrate all graduate teaching and research at Auckland and have everybody else concentrate on undergraduate. I think he overestimates how willing anybody who's half-way decent would be to stay in New Zealand under that scheme; you'd have a few better people in Auckland, and every other University would be pretty terrible.

One big inefficiency in the New Zealand system is the pretty tight salary distribution across Departments. Regardless of whatever international salaries are doing, we don't pay a lot more for folks in economics or finance than we pay for folks in English lit. There's wiggle room in where we appoint people on the standard bands, and there's additional wiggle room in minor salary top-ups to reflect market conditions, but variation across disciplines is pretty small. In the US, where most PhDs are produced, things are a bit different. The Wall Street Journal reports today that starting salaries for new PhDs in economics is $112k US, or about $140k NZ. That's about what we pay full professors.

Established or not, economists are hot commodities. Last year, the average starting salary for new assistant economics professors was nearly $112,000 – the highest ever in inflation-adjusted terms and one of the highest across academic departments, according to the American Economic Association.

“I tell our PhD students, you’re fortunate to have chosen economics instead of philosophy or English,” says John Cawley, professor of economics at Cornell University in Ithaca, New York. “Because the reality is, everyone gets a job.”

Things are set to get worse. The government's redirecting funding from commerce and arts over to the STEM subjects. There's already a pretty strong bias towards science students:

The Government pays universities a subsidy of $10,545 a year for each science student, $11,282 for technology and engineering, and $6135 a year for mathematics, business and arts subjects.

It's more expensive to educate a science student than an arts student: labs and chemicals are expensive. Economics doesn't really have any of those lab costs. But what we do have are incredible human capital costs. The Chronicle of Higher Ed last year ranked full professor salaries by discipline, taking English Language and Literature as benchmark. The chart's copied below.

How Much More (or Less) Full Professors Earned, by Discipline, Than the Average Full Professor of English Language and Literature, 1980-81 to 2009-10
Discipline	1980-81	1985-86	1991-92	1996-97	2001-2	2005-6	2009-10
Fine arts: visual and performing	-8.8%	-9.6%	-7.9%	-9.7%	-11.1%	-12.2%	-12.4%
Education	-4.0%	-8.0%	-1.2%	-0.8%	-2.5%	-3.8%	-4.3%
Foreign language and literature	0.9%	-1.8%	-1.5%	0.5%	-3.9%	-4.5%	-4.1%
Communications	-3.3%	-6.7%	2.6%	1.9%	-2.9%	-3.3%	-3.2%
Philosophy	2.3%	-4.8%	2.0%	1.1%	-2.9%	0.0%	2.1%
Library science	-1.5%	-0.6%	9.9%	6.6%	3.5%	-2.1%	3.6%
Mathematics	7.6%	4.4%	11.0%	11.5%	6.8%	6.8%	7.2%
Psychology	5.0%	1.6%	9.5%	9.7%	8.3%	9.0%	8.9%
Physical sciences	7.7%	8.0%	14.9%	14.5%	12.8%	12.1%	12.9%
All-discipline average (including medical)	4.8%	5.1%	13.3%	13.9%	12.2%	12.0%	13.4%
Social sciences	4.8%	3.2%	9.0%	8.7%	9.2%	14.1%	16.8%
Health professions and related sciences	20.3%	19.8%	34.3%	36.4%	31.3%	18.1%	18.9%
Engineering	8.1%	14.3%	29.0%	27.8%	24.0%	24.3%	25.2%
Computer and information sciences	13.4%	17.6%	32.2%	28.1%	28.7%	27.5%	28.4%
Economics	13.9%	11.3%	28.4%	25.7%	26.4%	32.4%	41.2%
Business administration and management	11.4%	15.2%	33.8%	38.7%	40.8%	46.5%	50.9%
Law and legal studies	33.2%	41.0%	54.2%	58.4%	53.5%	54.0%	59.5%
Source: "Faculty Salary Survey by Discipline," Office of Institutional Research and Information Management, Oklahoma State University

Sure, the sciences and engineering have all those kit costs. But salaries are the vast majority of total expenditures at all New Zealand universities. And if you want to have anybody decent in Economics, Business, and Law, you have to pay. And when the government reckons that the per-student subsidy should be the same between Economics and Poetry, and that the subsidy for both ought to be dropping relative to Sciences, you're setting yourself up for failure.

The government might reckon that having a bunch of really good engineers matters more than a bunch of really good economists. We ought to remember that the Soviet Union had a bunch of really exceptional engineers - some of the very best in the world. It's not entirely clear that they chose the wisest point on the "good economist / good engineer" frontier.

There is a strong case for putting Economics & Finance into the STEM band based on human capital costs. If the government is setting the fee bands not to reflect costs of educating students but instead to capture some notion of external benefits, then they'd likely do better in subsidizing outcomes directly instead of inputs.

Update: Dave Guerin suggests this is a "blatent play for higher salary." I'll be more explicit: giving higher salaries to existing people here would confer large rents [econ jargon for payment above that necessary to bring forth supply] on existing staff. It shouldn't be done unless existing staff put themselves up for promotion to a new paygrade with higher quality output obligations. Cutting Econ department budgets by taking money from Commerce and shunting it over to STEM will either cut staff in Econ or reduce the quality of staff we're able to hire going forward. That's true for Arts as well. But Econ and Finance are already hitting hard tradeoffs given international salary differences.