Academic pay in the United Kingdom and the United States: the differential returns to productivity and the lifetime earnings gap.

• Author: Moore, William J.

1. Introduction

   The product market for academic research is truly international. Research produced by scholars in one country is "consumed" by research scholars in another through networks that afford almost instantaneous transmission of research output. These networks are easily accessed and include formal structures such as the presentation of research output at conferences and department seminars and the publication of research output in peer-reviewed journals. Transmission of research output also takes place through less formal arrangements such as the circulation of working papers by individual faculty members. Research can also be jointly produced by two or more scholars residing at universities located in two or more countries. Technological advances in the field of telecommunications have significantly reduced the costs of engaging in such joint production. Additionally, many scholars spend time visiting at universities in other countries where they can initiate and conduct research projects with their resident colleagues.

   However, despite the fact that the "product" market for academic research is international, academic labor markets for research scholars appear to remain separated. These markets are separated not only by distance but also by customs, traditions, and institutional factors that may lead to earnings structures that differ substantially across these separated labor markets. Some of these institutional differences have fairly obvious manifestations, such as, for example, the difference in professorial rank structures in the United States and Canada on the one hand, and the United Kingdom and Australia on the other. But there may be other less tangible differences that separate two academic markets, such as concerns for equity or fairness. While difficult to document, equalitarian considerations may be fairly important in the determination of earnings in one country and less so in another.

   In the present paper, we examine differences in the earnings structures between academic economists in the United States and the United Kingdom. It is widely recognized that academic salaries in the United States are higher than in the United Kingdom. Further, since faculty members in the United Kingdom below the rank of professor are paid according to a national pay scale (discussed below), it is presumed that research productivity differentials will not be fully reflected in the observed salary differentials for lecturers and senior lecturers. To the extent that returns to research productivity in the United Kingdom are low, we should observe flatter earnings profiles and less earnings dispersion across experience levels relative to the U.S. labor market. But at least part of the observed earnings differentials between the United States and the United Kingdom may reflect a more pronounced concern for equity in the United Kingdom. One might reasonably infer such equity concerns from an examination of the U.K. national salary schedules, which have no explicit discipline-based pay differentials. So, at least nominally, lecturers in Economics earn no more than their counterparts in English. (1)

   The separation in international labor markets is not unique to academia, but the study of compensation issues in academic labor markets has one distinct advantage. Academic labor markets allow us to examine the relationship between experience and earnings in an environment in which measuring individual productivity is less problematic than it is for workers in a cross section of private firms. While salary information is readily available from published public university budgets in the United States, an individual faculty member's salary in the United Kingdom is confidential. We were fortunate, however, to obtain salary information from academic economists through a national survey. Salary data were linked to demographic and productivity data taken directly from each individual's curriculum vitae. Our data set enables us to thoroughly explore salary differentials between the United Kingdom and the United States since it permits more precise measures of past and current relative productivity of individuals engaged in comparable work. Furthermore, by concentrating on researchers in one field--economics--it is possible to compare the relative earnings and relative productivity of individuals in fairly homogeneous jobs, in the same international product market, but who happen to work in separated labor markets.

   We employ a standard human capital earnings model to explore differential reward structures in academia between the United States and the United Kingdom. Despite the major institutional differences in compensation schemes, a comparably specified human capital model does a good job explaining earnings variations for academic economist in both countries. Our estimates suggest that rewards for research are more immediate and direct in the United States. Because of the national salary scale, the payoffs to experience and seniority are greater and the payoffs to research are lower in the United Kingdom than in the United States. After adjusting for productivity and demographic factors, we find that U.S. economists are paid approximately 40% more than otherwise equivalent economists in the United Kingdom. Simulating career age-earnings profiles for both markets, we find that the earnings gap widens with experience for relatively productive research economists and may even narrow with age for relatively less productive research economists. Nevertheless, the cumulative lifetime earnings foregone are substantial for both sets of United Kingdom economists.

2. Compensation Schemes in the United Kingdom and United States

   Compensation schemes differ between the United Kingdom and the United States in a number of important ways. Academic labor markets in the United States are highly competitive, and the rewards provided to successful researchers are quite substantial. In the United States, universities are funded through tuition, private donations, and state support for public universities. The federal government plays a minor role in the direct financing of higher education. Individual universities differ substantially in terms of their scope, mission, quality, and pay structures. Universities must, however, compete in a national market for research scholars, particularly top scholars.

   In the United Kingdom, the central government provides the funding for higher education, and most faculty members are paid under a fixed national salary scale that is negotiated by the Association of University Teachers (AUT) and the University and College's Employer Association. (2) Also, the salary scale sets a minimum and a maximum and annual increments for all ranks below the rank of professor. (3) A minimum is set on professors' salaries at a level above the top pay for reader/senior lecturers, and individual professors' salaries are based on negotiations between each university's personnel department and the individual. Discretionary salary increments may be awarded for exceptional productivity, but in practice these rewards are rare (Ward 1998; Bert 1999).

   The national salary scale and uniform automatic pay increases reduce university competition to hire top faculty and lower incentives for individual faculty to produce or to move. (4) Further, Williams, Blackstone, and Metcalf (1974) speculate that central funding in conjunction with the national salary schedules and accompanying regulations may facilitate collusion among the universities acting as agents for the government and that this monopsony situation results in lower salaries for faculty.

   Both countries base promotions at least in part on research productivity, and promotions are associated with pay increases. Among major universities in the United States, individuals are promoted and rewarded on the basis of their research productivity (Katz 1973; McDowell, Singell, and Ziliak 1999). Each promotion is accompanied by a one-time increase in permanent pay, but future increments depend on future productivity. In the United Kingdom, promotions allow the individual to move from one pay scale to a higher one with automatic future pay raises. Prior to the 1980s, promotion to senior lecturer was based on longevity and teaching quality, promotion to reader was based on longevity and research quality, and promotion to professor required an outstanding research record, a national reputation, and administrative skills (Williams, Blackstone, and Metcalf 1974). For many years, the rank of professor in U.K. universities was reserved for a very select group. Often there was only one professional chair per department, and that person served as head of the department. To hold costs down, limits were placed on the proportion of faculty in the senior ranks (reader/senior lecturer and professor) at each university. While these practices are no longer followed, the proportion of professors remains much lower in the United Kingdom than in the United States. In our current samples 38% of U.K. economists are professors compared to 54% for the United States.

3. The Samples

   Because salary information in the United Kingdom is confidential, there have been relatively few studies of academic pay in the United Kingdom (Bowen 1963; Metcalf 1970; Ward 1998; Blackaby and Frank 2000), and none of the existing studies examine the relationship between pay and research productivity. Our U.K. sample was obtained from email requests sent to approximately 1000 academic economists at 60 universities whose addresses were available on the internet. Individuals were asked to supply a copy of their current curriculum vitae and their academic salary. Complete information was obtained from 126 individuals. Given the low response rate and the relatively small sample, we have two concerns. First, the small sample may cause the regression estimates to be sensitive to specification. We explicitly address this issue...