Market Forces in Academia: Student Future Earnings and Faculty Pay across Fields

Abstract

Using data from over 100,000 university professors across public and private universities in the U.S. and Canada over more than 30 years, this study documents significant and growing wage heterogeneity among faculty, primarily driven by differences across academic fields. We find a strong correlation between professor salaries and student future earnings, both across and within fields and institutions. By employing a shift-share instrument based on persistent student placement patterns, we provide robust evidence of a causal relationship between student future earnings and faculty compensation. Notably, the elasticity of faculty wages to student earnings varies substantially across fields. Our analysis suggests that this variation is influenced by differences in tuition and donation revenues between fields, as well as disparities in faculty bargaining power.

Keywords: Labor and Finance, Compensation, Economics of Education, Com- petition for Talent, Research Institutions

JEL Classification: J31, I23, A23