THE PRICE OF A PROFESSOR

Cambridge and Kiel had familiarized me with great libraries; but Stanford libraries were different. The main library was open day and night. My favourite library had English classics of the past three centuries; one could stretch out on a sofa with Candide or Ancient Mariner and forget about time. This is a column I wrote on American academic salaries in Business Standard of 24 July 2000.

THE AMERICAN ACADEMIC MARKET

The highest paid professor in Stanford is a superb surgeon; he earns a salary in the neighbourhood of $800,000 a year, which is the kind of salary the CEO of a smaller multinational would earn. The President of the University earns only about half as much; there are probably half a dozen professors who earn more than the President. Stanford competes with the best universities of the US, and pays the salaries required to attract the best. There is a market for excellence outside, and the university enters it only as a buyer. Its reputation, its facilities, and the salubrity of the West Coast may induce some people to lower their offer price by a few thousand dollars; on the other hand, the astronomical real estate prices in the Silicon valley would raise the offer prices far more. A modest, run-down house in this area costs half a million dollars; anything decent costs $800,000 and more. Hence a professor who wishes to settle down in this area must reckon on mortgage costs starting from $50,000 a year.

The market for excellence is not a single market, but is segmented by specialization; and the prices in each market vary according to the prosperity of the employing industry. The value placed on experience varies across industries; the greater the value so placed, the greater the difference in the salaries of the old and the young. There is no discrimination in favour of age or preference for experience in the US. But if someone can turn years into achievement – pathbreaking research, best-selling books, popularity as a teacher – he can leverage that achievement into income. I give the salary structures of the main schools of Stanford University in the accompanying table; they give a fairly accurate picture of the various markets.

The highest salaries are earned by the best surgeons in the medical school – neurosurgeons, oncologists, specialists in transplants and vascular operations, and those who specialize in restoring the functions of organs. Below them are gynaecologists, ophthalmologists, radiologists, otolaryngologists and urologists. Dermatologists, physicians, pathologists and psychologists come last. What the market rewards here is not simply learning but on-the-spot judgment and manual skills; surgery is one of the last areas where they remain important. The importance of individual skills is also reflected in the wide range of salaries: the 75th percentile of senior professors earns 54 per cent more than the 25th percentile, and over four times the 25th percentile of the lowest range of assistant professors. The corresponding differentials in other disciplines are typically 30 per cent and 100 per cent respectively.

The next discipline in terms of salaries is business studies. This is really a hybrid discipline constructed out of economics, sociology, psychology and statistics. What makes it so lucrative is the market it serves. Managers run industries, and ensure that they earn more than any other class of professionals. A bright young person entering this profession can expect to reach the peaks of earning capacity. Those who train him capture some of these earnings in advance. What is interesting is the salaries that fresh professors earn in business studies – they are over 50 per cent higher than in any other discipline. And once a young man gets a full professorship, he can expect to earn 75-100 per cent more than his comperes in other disciplines. In other words, a good business school pays especially more to keep young talent.

This reflects the competition for bright young graduates in management. The earnings pyramid in business is not nearly as steep as in medicine. By taking the brightest and best trained, companies are making bets on them. As they progress through their careers, many will fall by the wayside; for everyone who makes more than a million a year, there will be many who will stagnate or opt out. But catching them young is important for companies; and their preference for young talent is reflected in the salary structure of business schools. Salaries in the law school are high for the same reason: the university must compete with a lucrative profession to attract talent.

Next to medicine and business studies come natural sciences. Stanford clubs together economics with natural sciences in respect of salaries; market salaries in economics are higher than in other social sciences, and more comparable to if somewhat lower than in natural sciences. In these disciplines, individual brilliance counts as in medicine, though not for the same reasons. There is scope for theoretical innovation, there are still physicists or economists changing the direction of the subject, and talented professors command a high price. There is also a market outside universities – for scientists in research laboratories and for economists in international institutions, banks and businesses. Hence the best professors can command relatively high salaries of $200,000 and above.

Engineering is a natural science that does not offer the same scope for individual achievement. But the best engineers still command high salaries in industry. Besides, engineers are extremely well trained and versatile; they can try their hand at many things. I find many engineers in the software industry here who started their careers in quite a different discipline. Good mastery of mathematics can take people far. Hence the top salaries in engineering are still almost comparable to those in natural sciences. But one can see the difficulties being faced by this discipline in the high salaries of assistant professors. Engineering is trying to attract good brains, but cannot offer the same dazzling prospects as more fashionable disciplines like business studies. So it offers 25 per cent higher starting salaries.

At the bottom are the schools of earth sciences, education and humanities – which comprises such disciplines as sociology, psychology and history. Here, assistant professors get the minimum salaries, which typically do not go much above $60,000; there is no market for young Ph Ds outside the universities, and this is the standard price they command. At their peak, professors in these faculties earn twice as much – the 75th percentile does not earn much less than in natural sciences or engineering. Those who stick to these disciplines and excel do almost as well in the end as in more fashionable disciplines. But with their low starting salaries, they find it difficult to attract bright young people into teaching.

The presence of earth sciences in this group is intriguing. Earth sciences does not mean geography; that discipline died out some time ago. The most important part of earth sciences is geology. Petroleum geology was once a hot subject. Today, however, reserves are too high, oil companies are not recruiting, and hence the discipline is languishing. Unravelling strata is a highly complex skill; but complexity alone earns little unless the underlying market is booming.

Although there is a market for knowledge in the US, professors’ salaries are not decided through periodic haggling. Peace and harmony within the university still require some uniformity across disciplines. What the market determines is the number of students in each discipline; as students abandon dying or unremunerative disciplines and flock into lucrative ones, so schools shrink and expand.

Stanford Academic Salaries, 1999-2000 ($000)
			Number	Percentile
				25th	50th	75th
Senior professors
Business School			16	186	193	200
Earth sciences			13	105	115	122
Education			14	108	122	132
Engineering			32	111	122	137
Humanities			32	110	122	130
Law			27	167	175	185
Medical School			22	200	256	308
Natural sciences & economics			56	113	127	142
Social sciences			21	102	111	143
Junior professors
Business School			29	151	167	181
Earth sciences			12	87	91	103
Education			15	98	106	124
Engineering			51	92	99	112
Humanities			37	87	97	111
Medical School			173	155	167	190
Natural sciences & economics			56	113	127	142
Social sciences			17	86	99	122
Assistant professors
Business School			22	94	102	118
Engineering			40	71	73	76
Humanities			56	53	54	55
Medical School			53	73	78	88
Natural sciences & economics			39	57	61	63
Social sciences			23	55	56	59