34 Pages Posted: 8 Aug 2006
Date Written: October 8, 2006
Does the payment of peanuts tend to result in the hiring of monkeys? Unfortunately, privacy and other constraints on data mean that surprisingly little is known about this issue. In this paper, I use some unique data from the New Zealand academic system to provide direct evidence that pay levels do matter in determining the available pool of quality workers. Academic salaries are independent of discipline in New Zealand universities, but because different disciplines face different outside labour market opportunities, their ability to recruit high-quality academics is also likely to vary. Utilising the results from a national research assessment exercise first undertaken in 2003, I find that discipline research performance is indeed negatively related to the value of outside opportunities: the greater a discipline's average salary in United States universities, the weaker its research performance in New Zealand universities. The latter apparently get what they pay for: disciplines in which the fixed compensation is high relative to opportunity cost are best able to recruit high-quality researchers and/or motivate their researchers to be productive. Paying (relative) peanuts attracts mainly monkeys.
Keywords: Remuneration, incentives, research performance
JEL Classification: I28, J33, J44, M52, G00
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