- Email: [email protected]
Compression in faculty salaries: An empirical evaluation of merit and market based adjustments
Compression in Faculty Salaries: An Empirical Evaluation of Merit and Market Based Adjustments
JANE H. LILLYDAHL LARRY D. SINGELL* University
of
Colorado, Boulder
ABSTRACT: This article examines the nature and effects of the compression of faculty salaries in higher education. A behavioral model of faculty performance and compensation is developed. The model is then tested using data from a major American university. Problems of equity and efficiency are identified and policy recommendations are offered.
INTRODUCTION
Concern about equity in faculty compensation has had a long history, but there is a relatively new worry that has been characterized as “compression.” Compression is exemplified by new entrants earning salaries approximately equal to senior assistant or associate professors, or senior full professors earning salaries almost equal to those of their more junior colleagues with fewer accomplishments. These conditions are described as compression because salary differences across rank or experience at least for some group of faculty have become reduced or compressed. In a recent survey, this was identified as the major concern facing university administrators (Yarbrough, 1986). Although * Direct all correspondence to: Larry D. Singell, Department of Economics, Campus Box 256, University of Colorado at Boulder, Boulder, CO 803094040. The Journal of Socio-Economics, Volume 21, Number 3, pages 229-243 Copyright @ 1992 by JAI Press Inc. All rights of reproduction in any form reserved. ISSN: 1053-5357
230
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21 /No. 3/l 992
compression has become a central issue, there has been virtually no systematic research on the subject. This article argues that in order to examine the nature, magnitude or effects of compression, salary differentials need to be evaluated in relationship to each faculty member’s experience and performance in teaching, research, and service. After a brief discussion of some of the causes of compression and a review of national trends in faculty compensation, we develop a behavioral model of faculty performance and compensation. This model is estimated using data from a major state university, and the results are used to evaluate the nature and significance of compression. When performance is held constant, we find evidence of a narrowing salary gap particularly for full professors who have spent most of their careers at one institution and for faculty in departments that have experienced rapid growth. Not surprisingly, the willingness of university administrators to respond to market offers also has a significant effect on compression. Compression in compensation raises concerns not only about equity, but also about efficiency because of potential behavioral responses of faculty to the rewards for research, teaching, and service. We present evidence that improved performance in teaching is not rewarded and that responses to market offers may effectively nullify rewards for sustained meritorious performance in teaching and service. Some policy recommendations are offered at the conclusion of the article.
SALARY COMPRESSION
AND TRENDS
IN FACULTY COMPENSATION
An empirical evaluation of compression is complicated by the fact that its emergence is inextricably tied to several major developments in the pattern of faculty salaries. Three stylized facts characterize these developments and their review helps both to define the problem and to illustrate its complexity. First, the rate of increase in assistant professors’ salaries has been higher than the rate experienced by full professors. From 1971 until 1989, for example, assistant professors’ salaries increased in real terms by 20.1 percent, or five times faster than the 3.8 percent increase for full professors’salaries (Academe, March 1989, p. 5). Thus, a very common definition or characterization of compression is the narrowing gap between experienced faculty and relatively new entrants. Second, in general, disciplines with relatively high salaries in the mid-1970s, such as business, law, and computer science, have received disproportionately larger percentage salary increases since that time. This has been particularly true for new assistant professors. In contrast, disciplines such as fine arts and foreign languages with relatively low salaries in the mid-1970s received lower percentage increases, with the result that salary differences across disciplines have generally widened in the 1980s (Kasper, 1989). Faculty in these slow growth departments who have maintained consistent performance at their institutions
Compression in Faculty Salaries
231
for a long period of time may perceive their salaries to be compressed relative to their career merit and relative to new entrants in fast-growing departments. Third, the variation in faculty salaries within ranks has widened significantly in recent years. For example, between 1976 and 1988 the coefficients of variation for real salaries increased by 48.8 and 63.1 percent for full and assistant professors, respectively (Hamermesh, 1988). Thus, while faculty in some departments may find their salaries compressed, they can easily find faculty in other parts of the university that they perceive as having similar career merit who receive significantly higher salaries. Fundamentally, compression refers to an alteration in historically accepted patterns of compensation particularly in relation to career achievement. Thus, its identification and evaluation requires that differences in experience and accomplishment be taken into account. Researchers have reviewed and analyzed the causes of some of these changing patterns in faculty compensation, and a brief review of this work helps us understand the nature of compression. Hansen (1987) has argued that a very important development in the 1970s was the significant decline in real salaries of faculty. Between 1967 and 1981, real earnings of university faculty fell by 18.9 percent. For most senior faculty, this decline in real earnings was even more striking because the preceding period was one of substantial improvement in compensation. For example, between 1950 and 1970 faculty salaries exceeded the inflation rate by about 65 percent. Thus, after experiencing twenty years of improvement in real living standards, this period of decline may have appeared particularly inequitable to faculty who felt, their performance in research and teaching had been maintained or improved. This fall in real earnings in the 1970s set up conditions that resulted in a relative widening of salary levels across academic disciplines in the 1980s. In short, this fall in real salaries of academics in the 1970s increased the propensity of the private sector to hire faculty members whose knowledge and skills were of use to them. To counter these developments, universities increased the salaries of faculty in those disciplines in an effort to retain them. In addition, the private sector’s demand for people in some fields, exemplified by economics, business, and computer science, grew more rapidly during this period. As baccalaureate recipients in these fields found excellent jobs, undergraduate enrollments in these fields also began to increase rapidly. This exacerbated even more the pressure to maintain faculty in these fields (Hansen, 1987). It is noteworthy that research-oriented universities faced the most extreme pressures to adjust salaries in these fields. Since research performance is evaluated in a national market while teaching is more locally observed, competition for research-oriented scholars was more widespread. While these developments were underway, many universities developed and put into place formal procedures for annual salary adjustments that were at least partially merit based. Thus, when funds available for salary increases declined in real terms, meritorious performance was rewarded less. Furthermore, in the 1980s university budgets have been strained by efforts to retain and recruit faculty
232
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21/No. 3/l 992
in the areas where competition has been most severe. In this context, the senior faculty who were unable to get an outside offer or to renegotiate their salary may have experienced salary compression. Indeed, the reduced desire to move that is typical for senior faculty members may generate an “economic rent” or a return to living and working in a desired and familiar environment. Further, for some senior faculty the number of years until retirement may be too few to recapture the costs of moving. Administrators can capture part of these rents by allocating lower raises to immobile faculty and thus can use salary savings to, for example, attract new faculty or retain those who have competitive outside offers (Hamermesh, 1988). The manner in which university administrators respond to market pressures is not only important in the development of compression, but also is likely to influence faculty behavior. The most productive research scholars are more likely to obtain market offers. Administrators must trade off the ability to respond to these offers with the deterioration in morale and the reduced faculty output that may result because a constrained budget leaves a smaller salary pool for remaining faculty. The willingness to respond to offers, therefore, may affect the presence and extent of compression, as well as the behavior and performance of faculty in general. The empirical identification of compression in faculty salaries is complicated by the fact that earnings for more senior workers in general are expected to fall relative to other workers in any setting where earnings are based on both experience and performance. The ubiquitous concave age-earnings profile is typically explained by the interaction of diminishing returns to experience and the reduced incentive to accumulate human capital for older workers. Researchers have found that the returns to experience in virtually every occupation fall off substantially after approximately fifteen years. Since older faculty have a shorter period to collect the gains from new learning, they might be expected, other things equal, to be less motivated to keep abreast of new developments in their disciplines. Weiss and Lee (1978) have argued that in rapid growth fields or fields where developments in knowledge are rapid, relatively young faculty are more productive because they possess a more highly valued vintage of human capital. A central issue for higher education is what effect does a reward system of this type have on the motivation of senior faculty to contribute what they are capable of giving? The review of these major developments makes it clear that a careful examination of compression must take cognizance of, or hold constant, not only differences in performance and age earnings profile influences, but also potential differences in market growth rates and rates of change in knowledge in particular fields. A MODEL OF FACULTY SALARY DETERMINATION To evaluate market forces and compression, we formulated a multi-equation model to explain faculty salaries.’ A very large number of studies have been
233
Compressionin FacultySalaries
conducted to identify the influence of factors such as research, teaching and service performance, and gender, age, and experience on salary (Katz, 1973; Koch & Chizmar, 1973; Ramsay, 1977; Siegfried & White, 1973; Hamermesh et al., 1982). These studies have generally estimated a single equation model to explain salary differences. Hansen, Weisbrod, and Strauss (1978) argued that single-equation models may result in biased estimates of the impact of performance measures on salary. They proposed a model based upon a set of demand, supply, and production functions founded on utility maximizing behavior in the university setting. Drawing on their work we formulated a model consisting of a research-productivity function, a teaching-productivity function, and an earnings equation. These equations in general form follow: T = T(EXPT,
R = WXPR,
Q,
CT)
Q, CR)
LogSAL = S( ?, ri, S, M, E, Cs)
where
(1)
(3)
T = teaching output R = research output SAL = annual salary EXPT = years of teaching experience EXPR = years since Ph.D. Q = quality of institution where Ph.D. was earned Ci = a vector of control variables (including such factors as gender and race) which differ for the three equations S = a vector of university service variables M = a vector of market/mobility variables E = a vector of experience variables
The data set used to estimate this model is a sample of 244 faculty members in the College of Arts and Sciences at the University of Colorado at Boulder. The data are for the academic year 1987-1988. A description of the variables is provided in Table 1; Table 2 presents mean values of key descriptors. Since salary information at the University is public information, we have accurate information was obtained from faculty earnings data.2 Additional questionnaires and university records. A comparison of faculty salaries at the University of Colorado and other public research universities suggests that the University of Colorado is representative in terms of relative salaries by rank. The econometric results of the recursive model are presented in Table 3 (a,b, & c).~ While the results for equations (I) and (2) are less important in the study of compression, some brief observations may be useful. In the teaching
234
THE JOURNAL OF SOCIO-ECONOMICS
Table 1:
Variable
Definitions
Variable Name
Description
SAL
Annual
faculty salary as reported
mental
Budget,
University
in the Personnel
of Colorado
Years of experience
QUALPHD
Receipt of Ph.D. from a top ten department
I987- 7988
teaching in one’s field. Primary data
source: Jones, L., Lindzey, G. and Coggeshall, of Research Doctorate Academy
Roster and Depart-
at Boulder
YRSTCH
National
Vol. 21/No. 3/1992
P., editors. An Assessment
Programs in the United
States. Washington,
D.C.:
Press, 1982.
GENDER
Dummy
variable = 1 for male faculty
ETHNIC
Dummy
variable = 1 for a member
member
FULL
Dummy
variable = 1 if rank is full professor
ASSOC
Dummy
variable = 1 if rank is associate professor
NAT
Dummy
variable = 1 if department
is in the natural sciences
sot
Dummy
variable = 1 if department
is in the social sciences (Economics
of an ethnic
minority
is excluded) HUM
Dummy
PHDYRS
Years since Ph.D.
variable = 1 if department
is in the humanities
RPERYR
Average number
TOTALRES
Total number
AVEFCQ
Average rating on the faculty course questionnaires undergraduate
Qi
Ql
of refereed publications
courses (student evaluations
to Q5 are dummy
member’s
per year
of refereed publications for graduate and
on a 1 to 5 scale)
variables representing
the quality of the faculty
research fQ1 is lowest; Q5 is highest) as assigned by the Dean
of the College GRANT
Annual
DADMIN
Faculty has had administrative
grant dollars
(dummy UADMIN
experience
within
the department
experience
within
the university
variable)
Faculty has had administrative
(outside
the department) OFFER
Dummy
variable = 1 if the individual
the university
administration
AWARD
Faculty member
CUPCT
The percent of the faculty
(dummy
has successfully
after receiving
has received a teaching
negotiated
an outside employment
award within
with offer
the last ten years
variable) member’s
career spent at the University
of
Colorado AGE TEXTBOOK
Number
of textbooks
written
productivity equation, after experimentation with alternative measures of teaching performance as the dependent variable, we adopted the average instructor rating assigned by students as the best variable available. Only years of teaching experience and average number of research articles per year were robustly statistically significant explanatory variables. The results suggest a
Compression
235
in Faculty Salaries
Table 2:
Mean Values of Key Variables (Standard deviations in parentheses)
Variable Salary Experience (Years since Ph.D.) Articles/year
Grant Dollars (in ‘000’s) % Receiving Teaching Award
Entire Sample $4 1,065 (9196) 19.5
Full Professor
Associate Professor
$31,140
$36,062
$47,508 (7855) 26.4
Assistant Professor
(3539) 15.1
(31921 7.1 (4.2)
(9.8)
(7.0)
(5.7)
1.8 (1.6)
2.0
1.7
1.5
(1.8)
(1.5)
(1.2)
$83 $220)
$106 (2751
$68.8
$40.5
(147)
(123)
11%
2.2%
6.6%
5.6%
t.25)
t.23)
c.32)
Ll5)
Undergraduate Teaching Evaluations
3.1 L55)
3.1 L55)
3.2 c.551
3.1 f.54)
Graduate Teaching Evaluations
3.4 L54)
3.4 C.55)
3.5 c.52)
3.4 c.52)
7.4% t.26)
9.5%
6.8% t.25)
2.2%
University Administration Experience
Age
47.5 (9.9)
n=
244
L29) 53.7 (7.5) 126
C.15)
43.8 (7.3)
36.2 (5.6)
73
45
fairly steep learning curve for teaching experience, which, consistent with other studies, peaks with about 15 years of experience. The negative coefficient on the research variable suggests that teaching and research are competitive activities. A good deal of research demonstrates that personal and stylistic variables as well as competence in the field affect student evaluations of instructors, but we did not have access to measures of these traits (Aigner & Thum, 1986; Marlin, 1990). We included race and gender variables as control variables, but these variables were not statistically significant. Finally, earning a degree from a top institution did not significantly affect teaching performance. In the research productivity equation, the dependent variable is the faculty member’s total number of refereed publications. Years since earning the Ph.D. was entered nonlinearly but was not significant, suggesting that there may be a variety of patterns of productivity over faculty members’ careers. In some fields, researchers may be the most productive early in their careers while in other fields the accumulation of knowledge over time may result in a strong positive association between productivity and experience. Interestingly, the variable for having earned a Ph.D. at a top university in one’s field is statistically significant and has a negative sign. We hypothesize that the university in our sample, like other similarly-ranked institutions, is more likely to recruit the least
236
THE JOURNAL OF SOCIO-ECONOMICS
Table 3a: Teaching
Regression Results for Productivity
Equation 6 Coefficient (t valuei
Variable YRSTCH
.02+ (1.71) -.0007*
YRSTCHZ
(-2.19) RPERYR
-.04* c-2.13) .07
QUALPHD
11.19) .03
GENDER
1.37) .lO
ETHNIC
c.64) 3.21*
CONSTANT
(29.711 *Statistically
significant
at the .05 level, two-tailed
test.
*Statistically
significant
at the .05 level, one-tailed
test.
Table 3b:
Regression Results for
Research Productivity
Equation
8 Coefficient (t value)
Variable PHDYRS
.43 c.431 .03
PHDYRS*
11.41) -9.81*
QUALPHD
(-2.14) 6.53
GENDER
(1.09) 9.14
ETHNIC
1.74) 25.07’
NAT
15.09) .03*
GRANT
(3.061 -4.55
CONSTANT
f-.45) *Statistically
stgnificant
at the .05 level, two-tailed
test.
‘Statistically
significant
at the .05 level, one-tailed
test.
Vol. 21/No. 30992
in Faculty
Compression
Table 3~.
Salaries
237
Earnings Equation (Log Salary as Dependent Variable)
Variable
6 Coefficient
Teaching
Variables
AVEFCQ
0 value)
.Ol C.77)
AWARD
.05+
(1.74) TEXTBOOK
,002 t.36)
Research Variables
TOTALRES
.002* (6.17)
TOTALRESZ
-.000004* (-3.44)
Ql
(low)
Q2 Q4 Q5 (high) Service Variables
DADMIN
-.09’ (-3.89) -.04+
(-1.84) .04* (1.98) .07* (2.55) .06* (3.50)
UADMIN
.08* (3.07)
Market
Mobility
Variables
OFFER
.05* (2.26)
CUPCT
-.11* (3.74)
Rank Variables
FULL
.28* (8.85)
ASSOC
Experience
Variables
AGE
.12* (4.79) .003 C.51)
ACE2
.000000001 (.OO)
Control
Variables
GENDER
.Ol (64)
ETHNIC
.Ol c.28)
NAT
-.18* (-6.48)
sot
-.20 (-6.88)
HUM
-.20 (-6.68)
CONSTANT
-4.55* (-.45)
*Statistically significant at the .05level, two-tailed test. ‘Statistically significant at the .05level, one-tailed test.
238
THE JOURNAL
OF SOCIO-ECONOMICS
Vol. 21/No. 30992
productive graduates from the best institutions and the most productive graduates from less prestigious institutions. The dummy variable for natural science is highly significant reflecting a combination of the higher productivity of faculty in these departments at the University and the fact that natural scientists tend to produce a larger number of shorter articles with many co-authors compared to other disciplines. Science faculty are also more likely to get grants which facilitate research output, but this factor is controlled for separately and is highly significant reflecting the growing importance of funding in university research. Once again, race and gender variables are not statistically significant. The results from the estimation of equation (3) which evaluates the determinants of salary are most important in considering compression. Before turning to the issue of compression, several general observations should be made with regard to the earning equation. First, research output both quantitatively and qualitatively is significant in salary determination.4 While there is evidence of diminishing returns to larger numbers of publications, positive marginal returns exist for up to approximately 300 publications over one’s career and up to 10 publications per year. Further, high-quality work can offset larger numbers of less prestigious articles. There is no evidence that teaching performance, when measured by average instructor ratings, has any significant impact on salary. Similarly, the publication of textbooks which we included as a teaching variable is insignificant. The variable for the receipt of a distinguished teaching award, however, was significant and raised a faculty member’s salary by 5 percent, ceteris paribus.5 These results taken together suggest that distinguished teaching, particularly when recognized by awards, may raise a faculty member’s salary. However, individuals who receive above-average, but not distinguished, ratings may not affect their salaries by improved teaching performance. This finding could also result because of general suspicion with student evaluations, or at least the unwillingness to place emphasis on small variations in these evaluations. Awards, for example, are typically based on more comprehensive evaluations of teaching including peer reviews. Although recent research has shown that student evaluations are highly correlated with other measures of teaching performance, there remains widespread concern over the reliability or comprehensiveness of student evaluations of instructors (Marlin, 1990). Service to the university as measured by taking on administrative responsibilities has a positive effect on salary. Our results suggest that administrative duties at both the department level (e.g., serving as department chair) and the university level are significant, the latter being slightly more financially rewarding. We did not include individuals in our sample who currently hold full-time university-level administrative posts. Thus, the coefficient on this variable suggests that some of the salary gains associated with administrative positions are maintained after one leaves the position.6
Compression
in Faculty
Salaries
239
One of the important contributions of this paper is the inclusion of a variable to capture market offers which has not been included in previous studies of faculty salary determination. We included a dummy variable in our model for faculty who received an outside offer to which the administration responded, and the coefficient on this variable is positive and statistically significant. Indeed, the coefficient on outside offers is such that the response to outside offers could easily offset the gains other faculty may have experienced from continued meritorious performance in teaching, research, and service. Indeed, the university’s response to outside offers is likely to be a significant factor in the existence and perception of compression for large numbers of faculty. Years of experience as measured by the age and age-squared variables is not significant. It should be kept in mind that experience entered significantly in both the research and teaching productivity equations, and that age is correlated with the rank variables which are statistically significant in the salary equation. Years of experience was retained in this equation so that age earnings profile influences could be held constant when evaluating compression. These results suggest that as long as experience improves performance, salary increases; but there is no reward to seniority itself. Tenure and promotions are often associated with upward adjustments in salary, holding performance constant. Thus, it is not surprising that faculty rank was highly significant. Because of the collinearity between faculty rank and tenure, it was not feasible to include both variables, but some of the returns to rank may be a return to tenure. Academic discipline is an important determinant of salary. Economists were used as the control group and have salaries which are significantly higher than average salaries in other fields. There is no evidence of either gender or ethnic discrimination; i.e., when other measures of performance are held constant, salaries are not significantly higher for males or for whites. In our view the model developed here is the appropriate framework in which to evaluate compression because salaries must be considered in the context of professional achievement. When versions of equation (3) were estimated using OLS, the R2 was approximately .80 suggesting that experience, performance in teaching, research and service, and other human capital and control variables explain a very large percent of the variation in faculty salaries. The coefficient on the variable identifying the percent of a faculty member’s career spent at the university suggests that a faculty member who has spent all of his or her career at one university may have a salary approximately 11 percent below individuals who have recently joined the faculty. It is important to keep in mind that this result holds constant not only performance in teaching, research, and service, but also the age earnings profile influences.7 One view of this result is that universities have imposed what some have labeled a “loyalty tax” on immobile faculty. Such a strategy may be efficient for the same reason that a “tax” on a fixed or immobile factor is seen as the optimal way to raise revenue for public goods. That is, universities faced with limited budgets may be able
240
THE JOURNAL
OF SOCIO-ECONOMICS
Vol. 21/No. 3/1992
to remain competitive for new faculty by imposing some of the costs on those who are either voluntarily or involuntarily immobile. Some senior faculty are immobile because they gain nonpecuniary satisfaction from various sources, including the comfort of a familiar environment, an established local reputation, or home ownership which may have been achieved at a low price and favorable mortgage terms. Of course, some faculty may be immobile because their limited professional achievements make them less marketable, but performance is held constant here. The importance of compression, however, is that it can create the feeling of second class citizenship, and the sense of common purpose and collegiality among faculty that it necessary for a healthy and productive university environment may be destroyed. To test the hypothesis that salary compression differs in fast-growing versus slow-growing fields within the University, we entered a set of dummy variables for very rapid growth, moderate growth, and slow growth departments (with declining growth departments as the default case).” The coefficients on the two growth groups were statistically significant and negative. There are at least two possible reasons why salaries of faculty in rapid-growth departments might become compressed. First, faculty in rapid growth departments are the ones who initiate proposals to pay incoming faculty higher salaries. Imposing some of the costs on these departments may be a combination of budgetary necessity and administrative control. Indeed, part of the budget for new positions may come out of the department’s salary base because positions are funded in part by retirements or vacancies. Second, rapidly growing departments may be the ones experiencing more rapid intellectual developments and therefore many existing faculty may possess a vintage of capital that is outdated or less valued in the profession. CONCLUSIONS
AND POLICY IMPLICATIONS
We find evidence of a general narrowing of the gap between the average salaries for new entrants or assistant professors and the average salaries for full professors, particularly those who have spent much of their career at one institution. Also, in rapidly growing fields salaries have become more compressed than in slow growth areas. At the same time, we find evidence of increases in the variance of faculty salaries within ranks and differential salary increases by discipline. The finding in our article that disparities in salaries are increasing is consistent with the aggregate data for research-oriented universities. These wide and growing disparities in faculty salaries exist in part because market pressures make it necessary to deviate from principles of equality if universities want to compete for the best talent in some fields. The results presented here also suggest that the behavior of faculty is sensitive to the way administrators respond to market pressures. In short, faculty are likely to respond to the reward structure for outstanding performance in research and teaching.
Compression in FacultySalaries
241
The willingness to pay high salaries to faculty in fields where scarcity exists, and thus produce compression for a large group of faculty, comes not only from university administrators but also from the faculty’s desire to hire or retain distinguished colleagues. There is evidence that some of the burden has been shifted onto faculty in rapidly growing departments that are making appointments which result in compressed salaries. However, since part of the competitive pressure in some fields comes from demand for talents outside the university (i.e., from the private sector), attempting to equate salaries across fields could result in the appointment of less able scholars in these fields. While even great universities can tolerate a small number of less distinguished departments, there is a strong tendency to fight such developments. There is widespread, but far from complete, acceptance of the principle that economic raises) are necessary to maintain faculty incentives (e.g., merit-based productivity. While compression is commonly seen as causing morale problems, Lazear (1988) has argued that some amount of salary compression in any work environment is efficient because it reduces disharmony among workers. In particular, greater equality in salaries may motivate cooperative behavior. On the other hand, compression can make those who perceive of themselves as relatively highly productive feel disenchanted with their salary adjustments. Consequently, organizations need to find some balance between these two competing forces when determining their salary structures, a balance largely unexplored in academic settings. What, if anything, can economists and behaviorists offer by way of recommendation to university administrators who are in a position to influence faculty salary structures? Since much of the concern is based on considerations of “fairness,” “ equity,” and “redistribution,” not much can be said as a positive economist. Indeed, the implicit value behind notions of Pareto optimality is that envy should not be considered. Nevertheless, several issues might be raised from the point of view of efficiency alone. First, there is good reason to be concerned about the apparent weakness in rewards for teaching. In particular, since market offers are based largely on research performance, matching such offers may negate rewards to persistent high levels of performance in teaching and service. The social implications of uncertain rewards to conscientious teaching could be profound for higher education as well as the society at large. Second, while economic theory suggests that taxing immobile or inelastically supplied resources may be efficient, in a setting where collegiality or a sense of common purpose is critical to the environment, “taxing” immobile faculty to deal with inadequate university salary pools could have undesirable longrun effects on output and performance. There are several concerns here. First, if rewards to continued meritorious performance are diminished, senior faculty may be less motivated and their output may decline. Secondly, senior faculty with the most years of tenure not only have the institutional memory, but also
242
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21/No. 3/l 992
have the responsibility to indoctrinate the next generation of scholars. Compensation systems which pay higher salaries to workers with longer seniority not only reward experience and performance, but also encourage the transmission of knowledge from one generation to another. One of the contributions of this paper is the incorporation of the influence of outside or market offers into the salary model. Our results suggest that administrative response to market offers tends to bias the reward structure toward distinguished performance in research. Hence, to the extent that compression is judged to be a problem, policy discussions about salary structures need to consider this issue. Clearly more work is required to evaluate the impacts of compression on performance and various types of faculty behavior. Further study is also warranted on the issue of vintage of human capital and compensation. It is our hope that this paper has not only provided some insight into the nature of compression, but also that it will stimulate others to tackle what seem to us issues of great consequence for higher education. We would like to thank Dean Charles R. Middleton for his support and Acknowledgments: assistance with this research project. We would also like to thank Richard Cook for his computer assistance, and Joan Huckaby and Judy Ruha for their careful data collection.
NOTES I.
2.
3.
4. 5. 6. 7. 8.
Although time series data would have been desirable from the point of view of addressing
changes in compression over time, we believe this cross-section data set allows us to consider important market forces influencing compression and allows us to answer such questions as, Has compression proceeded so far that career research productivity, for example, has not been rewarded? The sample represents approximately 45 percent of the faculty in the College. We compared the salary means for those who did with those who did not participate in our survey. The mean salaries for full, associate and assistant nonrespondents ($48,136, $34,938, and $31,296 respectively) are not statistically different from the mean salaries by rank for our sample presented in Table I. We replicated our regression model as closely as possible using the 1988 National Survey of Postsecondary Facutly data. Our results for rhe University of Colorado were consistent with the national survey results. Unfortunately, this latter data set did not include some important variables such as teaching performance and market offers. We tried to include a research interaction term with quantity and quality of publications, but it was not statistically significant. Gender/ academic field interaction terms were also insignificant. It should be kept in mind that the poorest levels of performance in both teaching and research may be eliminated from the sample by the tenure and reappointment systems. Saks (1977) shows that the earnings of department chairs initially increases the individual’s salary by 13 percent. This declines to approximately 6 percent ten years after serving a three-year term as chair. In most labor markets, length of time with an organization raises wages beyond the pure effect of experience. Interestingly, in the university setting, we find the opposite is true. In order to economize on space, these regression results are not presented in table form.
REFERENCES Aigner,
D.J. and F.D. Thum. Education 17: 107-l 18.
(1986). On student
evaluation
of teaching
ability.
Journal of Economic
Compression
in Faculty Salaries
243
American Association of University Professors. Academe, various issues. Diamond, A.M., Jr. (1986). What is a citation worth? The Journal of Human Resources 21(l): 200-215. Hamermesh, D., G. Johnson, and B. Weisbrod. (1982). Scholarship, citations and salaries: Economic rewards in economics. Southern Economic Journal (Fall): 472-481. Hamermesh, D. (1988). Salaries: Disciplinary differences and rank injustices. Academe 74: 20-24. Hansen, W.L., B. Weisbrod, and R. Strauss. (1978). Modelling the earnings and research productivity of academic economists. Journal of Political Economy 86: 729-741. Hansen, W.L. (1987). The decline of real faculty salaries in the 1970’s. Quarterly Review of Economics and Business 24(4): 7-12. Kasper, H. (1989). High education goals: Low salary increases. Academe (March-April). Katz, D. (1973). Faculty salaries, rates of promotion and productivity at a large university. American Economic Review 63: 469477. Koch, J.V. and J. Chizmar. (1973). The influence of teaching and other factors upon absolute salaries and salary increments at Illinois State University. The Journal of Economic Education 5: 27-34. Lazear, E.P. (1988). Pay equality and industrial politics. University of Chicago and Hoover Institute working paper. Marlin, J.W., Jr. (1990). Student evaluations of instruction: Decipher the message. Pp. 235-254 in The principles of economics course: A handbook for instructors, edited by P. Saunders and W. Walstad. New York: McGraw Hill. McDowell, J.M. (1982). Obsolescence of knowledge and career publication profiles. Tne American Economic Review 72(4): 752-737. Ramsay, G.A. (1977). A generalized multiple regression model for predicting college faculty salaries and estimating sex bias. Pp. 32-53 in Salary equity: Detecting sex bias in salaries among college and university professors, MA: Lexington Books. Saks, D.H. (1977). How much does a department chairperson cost? Journal of Human Resources 12(4): 535-539. Siegfried, J.J. and K.J. White. (1973). Teaching and publishing as determinants of academic salaries. Tne Journal of Economic Education 4: 90-99. Weiss, Y. and L. Lee. (1978). Experience, vintage, and time effects in the growth of earnings: American scientists, 1960-1970. 77re Journal of Political Economy 86(3): 427447. Yarbrough, H.L. (1986). A study of the methodology used in the determination of entry levelfaculty salaries, salary adjustments and annual salary increases in selecred colleges and universities in the United States, dissertation, The University of Tennessee.
JANE H. LILLYDAHL LARRY D. SINGELL* University
of
Colorado, Boulder
ABSTRACT: This article examines the nature and effects of the compression of faculty salaries in higher education. A behavioral model of faculty performance and compensation is developed. The model is then tested using data from a major American university. Problems of equity and efficiency are identified and policy recommendations are offered.
INTRODUCTION
Concern about equity in faculty compensation has had a long history, but there is a relatively new worry that has been characterized as “compression.” Compression is exemplified by new entrants earning salaries approximately equal to senior assistant or associate professors, or senior full professors earning salaries almost equal to those of their more junior colleagues with fewer accomplishments. These conditions are described as compression because salary differences across rank or experience at least for some group of faculty have become reduced or compressed. In a recent survey, this was identified as the major concern facing university administrators (Yarbrough, 1986). Although * Direct all correspondence to: Larry D. Singell, Department of Economics, Campus Box 256, University of Colorado at Boulder, Boulder, CO 803094040. The Journal of Socio-Economics, Volume 21, Number 3, pages 229-243 Copyright @ 1992 by JAI Press Inc. All rights of reproduction in any form reserved. ISSN: 1053-5357
230
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21 /No. 3/l 992
compression has become a central issue, there has been virtually no systematic research on the subject. This article argues that in order to examine the nature, magnitude or effects of compression, salary differentials need to be evaluated in relationship to each faculty member’s experience and performance in teaching, research, and service. After a brief discussion of some of the causes of compression and a review of national trends in faculty compensation, we develop a behavioral model of faculty performance and compensation. This model is estimated using data from a major state university, and the results are used to evaluate the nature and significance of compression. When performance is held constant, we find evidence of a narrowing salary gap particularly for full professors who have spent most of their careers at one institution and for faculty in departments that have experienced rapid growth. Not surprisingly, the willingness of university administrators to respond to market offers also has a significant effect on compression. Compression in compensation raises concerns not only about equity, but also about efficiency because of potential behavioral responses of faculty to the rewards for research, teaching, and service. We present evidence that improved performance in teaching is not rewarded and that responses to market offers may effectively nullify rewards for sustained meritorious performance in teaching and service. Some policy recommendations are offered at the conclusion of the article.
SALARY COMPRESSION
AND TRENDS
IN FACULTY COMPENSATION
An empirical evaluation of compression is complicated by the fact that its emergence is inextricably tied to several major developments in the pattern of faculty salaries. Three stylized facts characterize these developments and their review helps both to define the problem and to illustrate its complexity. First, the rate of increase in assistant professors’ salaries has been higher than the rate experienced by full professors. From 1971 until 1989, for example, assistant professors’ salaries increased in real terms by 20.1 percent, or five times faster than the 3.8 percent increase for full professors’salaries (Academe, March 1989, p. 5). Thus, a very common definition or characterization of compression is the narrowing gap between experienced faculty and relatively new entrants. Second, in general, disciplines with relatively high salaries in the mid-1970s, such as business, law, and computer science, have received disproportionately larger percentage salary increases since that time. This has been particularly true for new assistant professors. In contrast, disciplines such as fine arts and foreign languages with relatively low salaries in the mid-1970s received lower percentage increases, with the result that salary differences across disciplines have generally widened in the 1980s (Kasper, 1989). Faculty in these slow growth departments who have maintained consistent performance at their institutions
Compression in Faculty Salaries
231
for a long period of time may perceive their salaries to be compressed relative to their career merit and relative to new entrants in fast-growing departments. Third, the variation in faculty salaries within ranks has widened significantly in recent years. For example, between 1976 and 1988 the coefficients of variation for real salaries increased by 48.8 and 63.1 percent for full and assistant professors, respectively (Hamermesh, 1988). Thus, while faculty in some departments may find their salaries compressed, they can easily find faculty in other parts of the university that they perceive as having similar career merit who receive significantly higher salaries. Fundamentally, compression refers to an alteration in historically accepted patterns of compensation particularly in relation to career achievement. Thus, its identification and evaluation requires that differences in experience and accomplishment be taken into account. Researchers have reviewed and analyzed the causes of some of these changing patterns in faculty compensation, and a brief review of this work helps us understand the nature of compression. Hansen (1987) has argued that a very important development in the 1970s was the significant decline in real salaries of faculty. Between 1967 and 1981, real earnings of university faculty fell by 18.9 percent. For most senior faculty, this decline in real earnings was even more striking because the preceding period was one of substantial improvement in compensation. For example, between 1950 and 1970 faculty salaries exceeded the inflation rate by about 65 percent. Thus, after experiencing twenty years of improvement in real living standards, this period of decline may have appeared particularly inequitable to faculty who felt, their performance in research and teaching had been maintained or improved. This fall in real earnings in the 1970s set up conditions that resulted in a relative widening of salary levels across academic disciplines in the 1980s. In short, this fall in real salaries of academics in the 1970s increased the propensity of the private sector to hire faculty members whose knowledge and skills were of use to them. To counter these developments, universities increased the salaries of faculty in those disciplines in an effort to retain them. In addition, the private sector’s demand for people in some fields, exemplified by economics, business, and computer science, grew more rapidly during this period. As baccalaureate recipients in these fields found excellent jobs, undergraduate enrollments in these fields also began to increase rapidly. This exacerbated even more the pressure to maintain faculty in these fields (Hansen, 1987). It is noteworthy that research-oriented universities faced the most extreme pressures to adjust salaries in these fields. Since research performance is evaluated in a national market while teaching is more locally observed, competition for research-oriented scholars was more widespread. While these developments were underway, many universities developed and put into place formal procedures for annual salary adjustments that were at least partially merit based. Thus, when funds available for salary increases declined in real terms, meritorious performance was rewarded less. Furthermore, in the 1980s university budgets have been strained by efforts to retain and recruit faculty
232
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21/No. 3/l 992
in the areas where competition has been most severe. In this context, the senior faculty who were unable to get an outside offer or to renegotiate their salary may have experienced salary compression. Indeed, the reduced desire to move that is typical for senior faculty members may generate an “economic rent” or a return to living and working in a desired and familiar environment. Further, for some senior faculty the number of years until retirement may be too few to recapture the costs of moving. Administrators can capture part of these rents by allocating lower raises to immobile faculty and thus can use salary savings to, for example, attract new faculty or retain those who have competitive outside offers (Hamermesh, 1988). The manner in which university administrators respond to market pressures is not only important in the development of compression, but also is likely to influence faculty behavior. The most productive research scholars are more likely to obtain market offers. Administrators must trade off the ability to respond to these offers with the deterioration in morale and the reduced faculty output that may result because a constrained budget leaves a smaller salary pool for remaining faculty. The willingness to respond to offers, therefore, may affect the presence and extent of compression, as well as the behavior and performance of faculty in general. The empirical identification of compression in faculty salaries is complicated by the fact that earnings for more senior workers in general are expected to fall relative to other workers in any setting where earnings are based on both experience and performance. The ubiquitous concave age-earnings profile is typically explained by the interaction of diminishing returns to experience and the reduced incentive to accumulate human capital for older workers. Researchers have found that the returns to experience in virtually every occupation fall off substantially after approximately fifteen years. Since older faculty have a shorter period to collect the gains from new learning, they might be expected, other things equal, to be less motivated to keep abreast of new developments in their disciplines. Weiss and Lee (1978) have argued that in rapid growth fields or fields where developments in knowledge are rapid, relatively young faculty are more productive because they possess a more highly valued vintage of human capital. A central issue for higher education is what effect does a reward system of this type have on the motivation of senior faculty to contribute what they are capable of giving? The review of these major developments makes it clear that a careful examination of compression must take cognizance of, or hold constant, not only differences in performance and age earnings profile influences, but also potential differences in market growth rates and rates of change in knowledge in particular fields. A MODEL OF FACULTY SALARY DETERMINATION To evaluate market forces and compression, we formulated a multi-equation model to explain faculty salaries.’ A very large number of studies have been
233
Compressionin FacultySalaries
conducted to identify the influence of factors such as research, teaching and service performance, and gender, age, and experience on salary (Katz, 1973; Koch & Chizmar, 1973; Ramsay, 1977; Siegfried & White, 1973; Hamermesh et al., 1982). These studies have generally estimated a single equation model to explain salary differences. Hansen, Weisbrod, and Strauss (1978) argued that single-equation models may result in biased estimates of the impact of performance measures on salary. They proposed a model based upon a set of demand, supply, and production functions founded on utility maximizing behavior in the university setting. Drawing on their work we formulated a model consisting of a research-productivity function, a teaching-productivity function, and an earnings equation. These equations in general form follow: T = T(EXPT,
R = WXPR,
Q,
CT)
Q, CR)
LogSAL = S( ?, ri, S, M, E, Cs)
where
(1)
(3)
T = teaching output R = research output SAL = annual salary EXPT = years of teaching experience EXPR = years since Ph.D. Q = quality of institution where Ph.D. was earned Ci = a vector of control variables (including such factors as gender and race) which differ for the three equations S = a vector of university service variables M = a vector of market/mobility variables E = a vector of experience variables
The data set used to estimate this model is a sample of 244 faculty members in the College of Arts and Sciences at the University of Colorado at Boulder. The data are for the academic year 1987-1988. A description of the variables is provided in Table 1; Table 2 presents mean values of key descriptors. Since salary information at the University is public information, we have accurate information was obtained from faculty earnings data.2 Additional questionnaires and university records. A comparison of faculty salaries at the University of Colorado and other public research universities suggests that the University of Colorado is representative in terms of relative salaries by rank. The econometric results of the recursive model are presented in Table 3 (a,b, & c).~ While the results for equations (I) and (2) are less important in the study of compression, some brief observations may be useful. In the teaching
234
THE JOURNAL OF SOCIO-ECONOMICS
Table 1:
Variable
Definitions
Variable Name
Description
SAL
Annual
faculty salary as reported
mental
Budget,
University
in the Personnel
of Colorado
Years of experience
QUALPHD
Receipt of Ph.D. from a top ten department
I987- 7988
teaching in one’s field. Primary data
source: Jones, L., Lindzey, G. and Coggeshall, of Research Doctorate Academy
Roster and Depart-
at Boulder
YRSTCH
National
Vol. 21/No. 3/1992
P., editors. An Assessment
Programs in the United
States. Washington,
D.C.:
Press, 1982.
GENDER
Dummy
variable = 1 for male faculty
ETHNIC
Dummy
variable = 1 for a member
member
FULL
Dummy
variable = 1 if rank is full professor
ASSOC
Dummy
variable = 1 if rank is associate professor
NAT
Dummy
variable = 1 if department
is in the natural sciences
sot
Dummy
variable = 1 if department
is in the social sciences (Economics
of an ethnic
minority
is excluded) HUM
Dummy
PHDYRS
Years since Ph.D.
variable = 1 if department
is in the humanities
RPERYR
Average number
TOTALRES
Total number
AVEFCQ
Average rating on the faculty course questionnaires undergraduate
Qi
Ql
of refereed publications
courses (student evaluations
to Q5 are dummy
member’s
per year
of refereed publications for graduate and
on a 1 to 5 scale)
variables representing
the quality of the faculty
research fQ1 is lowest; Q5 is highest) as assigned by the Dean
of the College GRANT
Annual
DADMIN
Faculty has had administrative
grant dollars
(dummy UADMIN
experience
within
the department
experience
within
the university
variable)
Faculty has had administrative
(outside
the department) OFFER
Dummy
variable = 1 if the individual
the university
administration
AWARD
Faculty member
CUPCT
The percent of the faculty
(dummy
has successfully
after receiving
has received a teaching
negotiated
an outside employment
award within
with offer
the last ten years
variable) member’s
career spent at the University
of
Colorado AGE TEXTBOOK
Number
of textbooks
written
productivity equation, after experimentation with alternative measures of teaching performance as the dependent variable, we adopted the average instructor rating assigned by students as the best variable available. Only years of teaching experience and average number of research articles per year were robustly statistically significant explanatory variables. The results suggest a
Compression
235
in Faculty Salaries
Table 2:
Mean Values of Key Variables (Standard deviations in parentheses)
Variable Salary Experience (Years since Ph.D.) Articles/year
Grant Dollars (in ‘000’s) % Receiving Teaching Award
Entire Sample $4 1,065 (9196) 19.5
Full Professor
Associate Professor
$31,140
$36,062
$47,508 (7855) 26.4
Assistant Professor
(3539) 15.1
(31921 7.1 (4.2)
(9.8)
(7.0)
(5.7)
1.8 (1.6)
2.0
1.7
1.5
(1.8)
(1.5)
(1.2)
$83 $220)
$106 (2751
$68.8
$40.5
(147)
(123)
11%
2.2%
6.6%
5.6%
t.25)
t.23)
c.32)
Ll5)
Undergraduate Teaching Evaluations
3.1 L55)
3.1 L55)
3.2 c.551
3.1 f.54)
Graduate Teaching Evaluations
3.4 L54)
3.4 C.55)
3.5 c.52)
3.4 c.52)
7.4% t.26)
9.5%
6.8% t.25)
2.2%
University Administration Experience
Age
47.5 (9.9)
n=
244
L29) 53.7 (7.5) 126
C.15)
43.8 (7.3)
36.2 (5.6)
73
45
fairly steep learning curve for teaching experience, which, consistent with other studies, peaks with about 15 years of experience. The negative coefficient on the research variable suggests that teaching and research are competitive activities. A good deal of research demonstrates that personal and stylistic variables as well as competence in the field affect student evaluations of instructors, but we did not have access to measures of these traits (Aigner & Thum, 1986; Marlin, 1990). We included race and gender variables as control variables, but these variables were not statistically significant. Finally, earning a degree from a top institution did not significantly affect teaching performance. In the research productivity equation, the dependent variable is the faculty member’s total number of refereed publications. Years since earning the Ph.D. was entered nonlinearly but was not significant, suggesting that there may be a variety of patterns of productivity over faculty members’ careers. In some fields, researchers may be the most productive early in their careers while in other fields the accumulation of knowledge over time may result in a strong positive association between productivity and experience. Interestingly, the variable for having earned a Ph.D. at a top university in one’s field is statistically significant and has a negative sign. We hypothesize that the university in our sample, like other similarly-ranked institutions, is more likely to recruit the least
236
THE JOURNAL OF SOCIO-ECONOMICS
Table 3a: Teaching
Regression Results for Productivity
Equation 6 Coefficient (t valuei
Variable YRSTCH
.02+ (1.71) -.0007*
YRSTCHZ
(-2.19) RPERYR
-.04* c-2.13) .07
QUALPHD
11.19) .03
GENDER
1.37) .lO
ETHNIC
c.64) 3.21*
CONSTANT
(29.711 *Statistically
significant
at the .05 level, two-tailed
test.
*Statistically
significant
at the .05 level, one-tailed
test.
Table 3b:
Regression Results for
Research Productivity
Equation
8 Coefficient (t value)
Variable PHDYRS
.43 c.431 .03
PHDYRS*
11.41) -9.81*
QUALPHD
(-2.14) 6.53
GENDER
(1.09) 9.14
ETHNIC
1.74) 25.07’
NAT
15.09) .03*
GRANT
(3.061 -4.55
CONSTANT
f-.45) *Statistically
stgnificant
at the .05 level, two-tailed
test.
‘Statistically
significant
at the .05 level, one-tailed
test.
Vol. 21/No. 30992
in Faculty
Compression
Table 3~.
Salaries
237
Earnings Equation (Log Salary as Dependent Variable)
Variable
6 Coefficient
Teaching
Variables
AVEFCQ
0 value)
.Ol C.77)
AWARD
.05+
(1.74) TEXTBOOK
,002 t.36)
Research Variables
TOTALRES
.002* (6.17)
TOTALRESZ
-.000004* (-3.44)
Ql
(low)
Q2 Q4 Q5 (high) Service Variables
DADMIN
-.09’ (-3.89) -.04+
(-1.84) .04* (1.98) .07* (2.55) .06* (3.50)
UADMIN
.08* (3.07)
Market
Mobility
Variables
OFFER
.05* (2.26)
CUPCT
-.11* (3.74)
Rank Variables
FULL
.28* (8.85)
ASSOC
Experience
Variables
AGE
.12* (4.79) .003 C.51)
ACE2
.000000001 (.OO)
Control
Variables
GENDER
.Ol (64)
ETHNIC
.Ol c.28)
NAT
-.18* (-6.48)
sot
-.20 (-6.88)
HUM
-.20 (-6.68)
CONSTANT
-4.55* (-.45)
*Statistically significant at the .05level, two-tailed test. ‘Statistically significant at the .05level, one-tailed test.
238
THE JOURNAL
OF SOCIO-ECONOMICS
Vol. 21/No. 30992
productive graduates from the best institutions and the most productive graduates from less prestigious institutions. The dummy variable for natural science is highly significant reflecting a combination of the higher productivity of faculty in these departments at the University and the fact that natural scientists tend to produce a larger number of shorter articles with many co-authors compared to other disciplines. Science faculty are also more likely to get grants which facilitate research output, but this factor is controlled for separately and is highly significant reflecting the growing importance of funding in university research. Once again, race and gender variables are not statistically significant. The results from the estimation of equation (3) which evaluates the determinants of salary are most important in considering compression. Before turning to the issue of compression, several general observations should be made with regard to the earning equation. First, research output both quantitatively and qualitatively is significant in salary determination.4 While there is evidence of diminishing returns to larger numbers of publications, positive marginal returns exist for up to approximately 300 publications over one’s career and up to 10 publications per year. Further, high-quality work can offset larger numbers of less prestigious articles. There is no evidence that teaching performance, when measured by average instructor ratings, has any significant impact on salary. Similarly, the publication of textbooks which we included as a teaching variable is insignificant. The variable for the receipt of a distinguished teaching award, however, was significant and raised a faculty member’s salary by 5 percent, ceteris paribus.5 These results taken together suggest that distinguished teaching, particularly when recognized by awards, may raise a faculty member’s salary. However, individuals who receive above-average, but not distinguished, ratings may not affect their salaries by improved teaching performance. This finding could also result because of general suspicion with student evaluations, or at least the unwillingness to place emphasis on small variations in these evaluations. Awards, for example, are typically based on more comprehensive evaluations of teaching including peer reviews. Although recent research has shown that student evaluations are highly correlated with other measures of teaching performance, there remains widespread concern over the reliability or comprehensiveness of student evaluations of instructors (Marlin, 1990). Service to the university as measured by taking on administrative responsibilities has a positive effect on salary. Our results suggest that administrative duties at both the department level (e.g., serving as department chair) and the university level are significant, the latter being slightly more financially rewarding. We did not include individuals in our sample who currently hold full-time university-level administrative posts. Thus, the coefficient on this variable suggests that some of the salary gains associated with administrative positions are maintained after one leaves the position.6
Compression
in Faculty
Salaries
239
One of the important contributions of this paper is the inclusion of a variable to capture market offers which has not been included in previous studies of faculty salary determination. We included a dummy variable in our model for faculty who received an outside offer to which the administration responded, and the coefficient on this variable is positive and statistically significant. Indeed, the coefficient on outside offers is such that the response to outside offers could easily offset the gains other faculty may have experienced from continued meritorious performance in teaching, research, and service. Indeed, the university’s response to outside offers is likely to be a significant factor in the existence and perception of compression for large numbers of faculty. Years of experience as measured by the age and age-squared variables is not significant. It should be kept in mind that experience entered significantly in both the research and teaching productivity equations, and that age is correlated with the rank variables which are statistically significant in the salary equation. Years of experience was retained in this equation so that age earnings profile influences could be held constant when evaluating compression. These results suggest that as long as experience improves performance, salary increases; but there is no reward to seniority itself. Tenure and promotions are often associated with upward adjustments in salary, holding performance constant. Thus, it is not surprising that faculty rank was highly significant. Because of the collinearity between faculty rank and tenure, it was not feasible to include both variables, but some of the returns to rank may be a return to tenure. Academic discipline is an important determinant of salary. Economists were used as the control group and have salaries which are significantly higher than average salaries in other fields. There is no evidence of either gender or ethnic discrimination; i.e., when other measures of performance are held constant, salaries are not significantly higher for males or for whites. In our view the model developed here is the appropriate framework in which to evaluate compression because salaries must be considered in the context of professional achievement. When versions of equation (3) were estimated using OLS, the R2 was approximately .80 suggesting that experience, performance in teaching, research and service, and other human capital and control variables explain a very large percent of the variation in faculty salaries. The coefficient on the variable identifying the percent of a faculty member’s career spent at the university suggests that a faculty member who has spent all of his or her career at one university may have a salary approximately 11 percent below individuals who have recently joined the faculty. It is important to keep in mind that this result holds constant not only performance in teaching, research, and service, but also the age earnings profile influences.7 One view of this result is that universities have imposed what some have labeled a “loyalty tax” on immobile faculty. Such a strategy may be efficient for the same reason that a “tax” on a fixed or immobile factor is seen as the optimal way to raise revenue for public goods. That is, universities faced with limited budgets may be able
240
THE JOURNAL
OF SOCIO-ECONOMICS
Vol. 21/No. 3/1992
to remain competitive for new faculty by imposing some of the costs on those who are either voluntarily or involuntarily immobile. Some senior faculty are immobile because they gain nonpecuniary satisfaction from various sources, including the comfort of a familiar environment, an established local reputation, or home ownership which may have been achieved at a low price and favorable mortgage terms. Of course, some faculty may be immobile because their limited professional achievements make them less marketable, but performance is held constant here. The importance of compression, however, is that it can create the feeling of second class citizenship, and the sense of common purpose and collegiality among faculty that it necessary for a healthy and productive university environment may be destroyed. To test the hypothesis that salary compression differs in fast-growing versus slow-growing fields within the University, we entered a set of dummy variables for very rapid growth, moderate growth, and slow growth departments (with declining growth departments as the default case).” The coefficients on the two growth groups were statistically significant and negative. There are at least two possible reasons why salaries of faculty in rapid-growth departments might become compressed. First, faculty in rapid growth departments are the ones who initiate proposals to pay incoming faculty higher salaries. Imposing some of the costs on these departments may be a combination of budgetary necessity and administrative control. Indeed, part of the budget for new positions may come out of the department’s salary base because positions are funded in part by retirements or vacancies. Second, rapidly growing departments may be the ones experiencing more rapid intellectual developments and therefore many existing faculty may possess a vintage of capital that is outdated or less valued in the profession. CONCLUSIONS
AND POLICY IMPLICATIONS
We find evidence of a general narrowing of the gap between the average salaries for new entrants or assistant professors and the average salaries for full professors, particularly those who have spent much of their career at one institution. Also, in rapidly growing fields salaries have become more compressed than in slow growth areas. At the same time, we find evidence of increases in the variance of faculty salaries within ranks and differential salary increases by discipline. The finding in our article that disparities in salaries are increasing is consistent with the aggregate data for research-oriented universities. These wide and growing disparities in faculty salaries exist in part because market pressures make it necessary to deviate from principles of equality if universities want to compete for the best talent in some fields. The results presented here also suggest that the behavior of faculty is sensitive to the way administrators respond to market pressures. In short, faculty are likely to respond to the reward structure for outstanding performance in research and teaching.
Compression in FacultySalaries
241
The willingness to pay high salaries to faculty in fields where scarcity exists, and thus produce compression for a large group of faculty, comes not only from university administrators but also from the faculty’s desire to hire or retain distinguished colleagues. There is evidence that some of the burden has been shifted onto faculty in rapidly growing departments that are making appointments which result in compressed salaries. However, since part of the competitive pressure in some fields comes from demand for talents outside the university (i.e., from the private sector), attempting to equate salaries across fields could result in the appointment of less able scholars in these fields. While even great universities can tolerate a small number of less distinguished departments, there is a strong tendency to fight such developments. There is widespread, but far from complete, acceptance of the principle that economic raises) are necessary to maintain faculty incentives (e.g., merit-based productivity. While compression is commonly seen as causing morale problems, Lazear (1988) has argued that some amount of salary compression in any work environment is efficient because it reduces disharmony among workers. In particular, greater equality in salaries may motivate cooperative behavior. On the other hand, compression can make those who perceive of themselves as relatively highly productive feel disenchanted with their salary adjustments. Consequently, organizations need to find some balance between these two competing forces when determining their salary structures, a balance largely unexplored in academic settings. What, if anything, can economists and behaviorists offer by way of recommendation to university administrators who are in a position to influence faculty salary structures? Since much of the concern is based on considerations of “fairness,” “ equity,” and “redistribution,” not much can be said as a positive economist. Indeed, the implicit value behind notions of Pareto optimality is that envy should not be considered. Nevertheless, several issues might be raised from the point of view of efficiency alone. First, there is good reason to be concerned about the apparent weakness in rewards for teaching. In particular, since market offers are based largely on research performance, matching such offers may negate rewards to persistent high levels of performance in teaching and service. The social implications of uncertain rewards to conscientious teaching could be profound for higher education as well as the society at large. Second, while economic theory suggests that taxing immobile or inelastically supplied resources may be efficient, in a setting where collegiality or a sense of common purpose is critical to the environment, “taxing” immobile faculty to deal with inadequate university salary pools could have undesirable longrun effects on output and performance. There are several concerns here. First, if rewards to continued meritorious performance are diminished, senior faculty may be less motivated and their output may decline. Secondly, senior faculty with the most years of tenure not only have the institutional memory, but also
242
THE JOURNAL OF SOCIO-ECONOMICS
Vol. 21/No. 3/l 992
have the responsibility to indoctrinate the next generation of scholars. Compensation systems which pay higher salaries to workers with longer seniority not only reward experience and performance, but also encourage the transmission of knowledge from one generation to another. One of the contributions of this paper is the incorporation of the influence of outside or market offers into the salary model. Our results suggest that administrative response to market offers tends to bias the reward structure toward distinguished performance in research. Hence, to the extent that compression is judged to be a problem, policy discussions about salary structures need to consider this issue. Clearly more work is required to evaluate the impacts of compression on performance and various types of faculty behavior. Further study is also warranted on the issue of vintage of human capital and compensation. It is our hope that this paper has not only provided some insight into the nature of compression, but also that it will stimulate others to tackle what seem to us issues of great consequence for higher education. We would like to thank Dean Charles R. Middleton for his support and Acknowledgments: assistance with this research project. We would also like to thank Richard Cook for his computer assistance, and Joan Huckaby and Judy Ruha for their careful data collection.
NOTES I.
2.
3.
4. 5. 6. 7. 8.
Although time series data would have been desirable from the point of view of addressing
changes in compression over time, we believe this cross-section data set allows us to consider important market forces influencing compression and allows us to answer such questions as, Has compression proceeded so far that career research productivity, for example, has not been rewarded? The sample represents approximately 45 percent of the faculty in the College. We compared the salary means for those who did with those who did not participate in our survey. The mean salaries for full, associate and assistant nonrespondents ($48,136, $34,938, and $31,296 respectively) are not statistically different from the mean salaries by rank for our sample presented in Table I. We replicated our regression model as closely as possible using the 1988 National Survey of Postsecondary Facutly data. Our results for rhe University of Colorado were consistent with the national survey results. Unfortunately, this latter data set did not include some important variables such as teaching performance and market offers. We tried to include a research interaction term with quantity and quality of publications, but it was not statistically significant. Gender/ academic field interaction terms were also insignificant. It should be kept in mind that the poorest levels of performance in both teaching and research may be eliminated from the sample by the tenure and reappointment systems. Saks (1977) shows that the earnings of department chairs initially increases the individual’s salary by 13 percent. This declines to approximately 6 percent ten years after serving a three-year term as chair. In most labor markets, length of time with an organization raises wages beyond the pure effect of experience. Interestingly, in the university setting, we find the opposite is true. In order to economize on space, these regression results are not presented in table form.
REFERENCES Aigner,
D.J. and F.D. Thum. Education 17: 107-l 18.
(1986). On student
evaluation
of teaching
ability.
Journal of Economic
Compression
in Faculty Salaries
243
American Association of University Professors. Academe, various issues. Diamond, A.M., Jr. (1986). What is a citation worth? The Journal of Human Resources 21(l): 200-215. Hamermesh, D., G. Johnson, and B. Weisbrod. (1982). Scholarship, citations and salaries: Economic rewards in economics. Southern Economic Journal (Fall): 472-481. Hamermesh, D. (1988). Salaries: Disciplinary differences and rank injustices. Academe 74: 20-24. Hansen, W.L., B. Weisbrod, and R. Strauss. (1978). Modelling the earnings and research productivity of academic economists. Journal of Political Economy 86: 729-741. Hansen, W.L. (1987). The decline of real faculty salaries in the 1970’s. Quarterly Review of Economics and Business 24(4): 7-12. Kasper, H. (1989). High education goals: Low salary increases. Academe (March-April). Katz, D. (1973). Faculty salaries, rates of promotion and productivity at a large university. American Economic Review 63: 469477. Koch, J.V. and J. Chizmar. (1973). The influence of teaching and other factors upon absolute salaries and salary increments at Illinois State University. The Journal of Economic Education 5: 27-34. Lazear, E.P. (1988). Pay equality and industrial politics. University of Chicago and Hoover Institute working paper. Marlin, J.W., Jr. (1990). Student evaluations of instruction: Decipher the message. Pp. 235-254 in The principles of economics course: A handbook for instructors, edited by P. Saunders and W. Walstad. New York: McGraw Hill. McDowell, J.M. (1982). Obsolescence of knowledge and career publication profiles. Tne American Economic Review 72(4): 752-737. Ramsay, G.A. (1977). A generalized multiple regression model for predicting college faculty salaries and estimating sex bias. Pp. 32-53 in Salary equity: Detecting sex bias in salaries among college and university professors, MA: Lexington Books. Saks, D.H. (1977). How much does a department chairperson cost? Journal of Human Resources 12(4): 535-539. Siegfried, J.J. and K.J. White. (1973). Teaching and publishing as determinants of academic salaries. Tne Journal of Economic Education 4: 90-99. Weiss, Y. and L. Lee. (1978). Experience, vintage, and time effects in the growth of earnings: American scientists, 1960-1970. 77re Journal of Political Economy 86(3): 427447. Yarbrough, H.L. (1986). A study of the methodology used in the determination of entry levelfaculty salaries, salary adjustments and annual salary increases in selecred colleges and universities in the United States, dissertation, The University of Tennessee.