Economic rent

June 25, 1999

Unless pay soars, there will be no British economists teaching in universities by 2009, warn Stephen Machin and Andrew Oswald

Gavyn Davies looks dull. He is of average height, has greyish brown hair and slightly stooped shoulders, moves slowly, and is neither handsome nor ugly. He wears the morose bookish air of the City economist. Unless you remembered him from television, or knew a lot about hand-made shoes, you would not bother glancing at him if he sat next to you on the Tube. Yet one thing might interest you, if you knew. Earlier this year Mr Davies received a lump sum of about Pounds 40 million from his employer Goldman Sachs.

For this kind of reason, academic economics is in trouble. Here are some illustrative facts.

The London School of Economics is one of Europe's most famous centres of research and training in economics and related disciplines. It is also one of the largest. In October 1998, LSE welcomed a new class of economics PhD students. There was no Briton among them.

Nuffield College in Oxford is, similarly, one of the most influential centres for social science research in Europe. It also had no Briton start.

The University of Warwick is one of the hardest places to get into as an economics undergraduate (this year the least-qualified entrant had 2As and a B). In the autumn of 1998, the proportion going on to graduate work in economics reached the lowest level since proper records began.

Is all this because the discipline of economics has somehow gone wrong? Are we mimicking global trends? Wrong on both counts. The chairman of the economics department at Stanford University in the US, for example, informed us that there was huge demand for his university's programme and that slightly more than half of the PhD class starting in 1998 were Americans.

The table left shows how few British people are doing PhDs at some of the top departments. The numbers it reveals will be insufficient to replenish the country's stock of academic economists.

Why do we think the problem is pay? First, this was the single most commonly mentioned factor in the interview work done for our report on academic economics for the Economic and Social Research Council, and in departmental questionnaires returned to us. Second, our data on economists' salaries in academia and outside, although certainly imperfect, suggest that since 1988 the pay of academic economists has fallen behind what is available in the private sector by about 20-30 per cent.

The median remuneration of private-sector economists in a recent survey was more than Pounds 53,000 per annum. The top point on the standard university senior lecturer scale is Pounds 34,000.

Senior university salaries are confidential. We doubt, however, that more than one or two academic economists in this country earn Pounds 100,000 per annum in salary plus consulting earnings. Yet in private-sector jobs such numbers are common. One of the private-sector economists in our anonymous data sample earned a bonus of Pounds 360,000 in 1998.

Of those currently on masters programmes in economics, only 6 per cent of the UK students said they intended to apply for a career in academia.

It is less easy to know why there is still a strong supply of non-UK EU applicants. However, it seems that students know they need to master English in a technical setting, that going to the US is viewed as relatively expensive, and that academic economics in the United Kingdom still has a powerful reputation.

If current trends continue for another decade or two, there will be almost no British teachers in our economics departments.

Vice-chancellors are going to have to pay their young economists far, far more. Otherwise British economics is going to wither away. It is withering fast.

Stephen Machin is professor of economics at University College London. Andrew Oswald is professor of economics at Warwick University. They are joint authors of 'Signs of Disintegration', published by the ESRC.

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