Working Paper No. 00-03-03 SALARY DETERMINANTS OF ENTRY LEVEL ACADEMIC ECONOMISTS AND THE CHARACTERISTICS OF THOSE HIRED ON THE TENURE TRACK

This paper examines the characteristics of entry level academic economists and investigates the determinants of market salaries. Contrary to what might be expected, we find that nominal salaries are not systematically adjusted to reflect observable differences in the cost of living. Our findings reveal that being hired on the tenure track significantly influence academic salaries regardless of departmental ranking. After analyzing the factors that influence salaries, we analyze the impact that observable characteristics have on the probability of being hired into tenure track positions. Completing a Ph.D. degree, being hired at a public university, and receiving a degree from a highly ranked department were found to be significant characteristics of those hired into tenure track positions. JEL Classification: J31, J44 ♣ PRELIMINARY: Do not quote or cite without permission. ∗ The authors wish to thank Samuel Addy, Paul Pecorino, and James Peoples for their helpful comments on this project. Thanks are also expressed to seminar participants at the University of Tennessee at Chattanooga. Research assistance was provided by Kenneth D. Griffin. This paper was supported by research assistance from the Center for Business and Economic Research at the University of Alabama. Any errors are those of the authors. Correspondence: University of Alabama, Department of Economics, Box 870224, Tuscaloosa, AL, 35487-0224. Phone (205) 348-6033 Email: [email protected]. 2 Introduction When examining salaries in labor markets, economists observe the characteristics of individual workers, employers, and jobs and seek to measure their impact on wages and salaries. In this paper we investigate and report on the determinants of salaries in the academic labor market for entry level economists. Previous studies focussing on this market have explored the impact of gender and age on salaries. [(Formby et al. 1993), (Barbezat 1992), (Raymond et al. 1988), and (McMillen and Singell 1994)]. The effects of academic reputation and departmental rankings of Ph.D. programs from which newly hired economists receive their degrees have also been investigated (Ehrenberg et al. 1998). This ranking could be a proxy for the quality of the training economists receive as graduate students and indirectly indicate expected future productivity. Recently, Siegfried and Stock (1999) provided a more extensive analysis of the labor market for entry level economists by examining employment outcomes and salaries of a large sample of new Ph.D.’s and whether they accepted jobs in academia, worked for a government agency, or went into the private sector. Their findings provide compelling evidence of how salaries vary across these broad sectors. This paper is more narrowly focussed and reports on the results of a survey of the academic labor market for persons hired at the beginning of the19981999 academic year. The survey is similar in design to the one used by Formby et al. (1993), which reported results for the 1987-1988 academic year. An aggressive follow-up strategy resulted in a response rate of over 66 percent, which yields reliable information on the salaries and characteristics of economists hired into the academic labor market in 1998. We note at the outset that in some ways our findings relating to determinants of salary are not surprising because they confirm what until now was widely suspected but not tested. For example, it is not surprising that being hired on the tenure track results in a large and highly