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ABSTRACT Determinants of Faculty Salaries at Elite Liberal Arts ABSTRACT Determinants of Faculty Salaries at Elite Liberal Arts Colleges Kellie J. Konsor, M.S. Eco. Committee Chairperson: Steven L. Green, Ph.D. In this paper we focus on the determinants of faculty salary levels at elite liberal arts colleges for specific years over the past decade. We address the role regional personal income per capita and endowment play in average salary determination. Other variables we consider include ranking, enrollment, tuition, discipline concentration, the professor to student ratio, the concentration of female professors among faculty and the ratio of research to instructional expenses. We find that regional personal income and endowment have a positive effect on average salaries, while ranking has a negative effect. Research has a positive effect on salaries in the later years, and tuition is not a consistent determinant of salary. Results also seem to be stable over time for most years and professor rankings. Determinants of Professor Salaries at Elite Liberal Arts Colleges by Kellie J. Konsor, B.A. A Thesis Approved by the Department of Economics ___________________________________ H. Stephen Gardner, Ph.D., Chairperson Submitted to the Graduate Faculty of Baylor University in Partial Fulfillment of the Requirements for the Degree of Master of Science in Economics Approved by the Thesis Committee ___________________________________ Steven L. Green, Ph.D., Chairperson ___________________________________ James W. Henderson, Ph.D. ___________________________________ Robert C. Cloud, Ed.D. Accepted by the Graduate School December 2010 ___________________________________ J. Larry Lyon, Ph.D., Dean Page bearing signatures is kept on file in the Graduate School. Copyright © 2010 Kellie J. Konsor All rights reserved TABLE OF CONTENTS LIST OF FIGURES ............................................................................................................ v LIST OF TABLES ............................................................................................................. vi LIST OF ABBREVIATIONS .......................................................................................... vii ACKNOWLEDGMENTS ............................................................................................. viii 1. Introduction ................................................................................................................. 1 2. Professor Salaries: Trends and Issues ..................................................................... 3 3. Theory ........................................................................................................................... 7 4. Literature Review: Faculty Salary Determinants .................................................. 9 Individual Salary Determinants ......................................................................... 9 Average Faculty Salary: Determinants .......................................................... 12 Role of Research and Teaching ........................................................................ 13 5. The Data ..................................................................................................................... 15 Data Sources ....................................................................................................... 15 Sample ................................................................................................................. 16 Variables & Summary Statistics ....................................................................... 19 Data Issues .......................................................................................................... 28 6. Cross Section Analysis ............................................................................................. 29 The Model ........................................................................................................... 29 Results .................................................................................................................. 31 iii Implications ........................................................................................................ 38 Endogeneity ........................................................................................................ 42 7. Conclusion ................................................................................................................. 43 APPENDICES ................................................................................................................. 45 A. Liberal Arts Colleges in Sample and MSA ............................................... 46 B. Additional Summary Statistics ................................................................... 50 BIBLIOGRAPHY ............................................................................................................ 52 iv LIST OF FIGURES 6.1 Professor Salary Equation .......................................................................................29 v LIST OF TABLES 5.1 Variable Definitions .................................................................................................18 5.2 Salary Summary Statistics .......................................................................................19 5.3 Regional Income and Financial Summary Statistics ...........................................21 5.4 Academic and Institutional Summary Statistics .................................................23 5.5 Ranking Summary Statistics ...................................................................................27 6.1 Full Professor Cross Section Analysis ...................................................................32 6.2 Associate Professor Cross Section Analysis .........................................................34 6.3 Assistant Professor Cross Section Analysis .........................................................36 A.1 Liberal Arts Colleges and MSAs ...........................................................................46 B.1 Logged Salary Summary Statistics ........................................................................50 B.2 Logged Independent Variable Summary Statistics ............................................51 vi LIST OF ABBREVIATIONS AAUP American Association of Universities and Professors FTE Full Time Equivalent IPEDS Integrated Postsecondary Education Data System LAC Liberal Arts College Log Natural Logarithm MSA Metropolitan Statistical Area Obs. Observations OLS Ordinary Least Squares PIC Personal Income per Capita St. Dev. Standard Deviation STEM Science, Technology, Engineering and Mathematics USNWR U.S. News and World Report vii ACKNOWLEDGMENTS John Donne wrote a series of meditations while enduring an illness, one of which coined the infamous phrase “no man is an island.” While writing a thesis is not comparable to enduring an illness (on most days), Donne’s insight could not be truer for such an endeavor I’d like to thank Dr. Green, my thesis advisor, for his guidance and patience through this process. Not only was he always available for direction, instruction and clarification, but he always had an encouraging word. I never left his office without a “hang in there.” Thank you to my committee members, Dr. Henderson and Dr. Cloud, for being a part of this process. The opportunity cost of their time is not low, and I appreciate their willingness to provide feedback in this academic process. To my cohort, friends and family who have listened to me expound upon economic ideas they surely find trivial and superfluous—thank you for nodding and smiling anyway. viii CHAPTER ONE Introduction Professor salary has been a popular topic in academic research circles for quite some time. In a profession concerned with answering questions, it seems natural that professors research the question concerning how their compensation is determined—it hits close to home and even closer to the wallet. While professors across disciplines and schools may be united in a desire to know what determines their compensation, the colleges and universities they call home across the United States are not homogenous. Even with differences among institutional types, are professors compensated according to many of the same factors? In this paper we focus on the determinants of faculty salary levels at elite liberal arts colleges (LACs) over the past decade using the same methodology used for other institutional types. We address the role regional personal income per capita and endowment play in average salary determination at prestigious LACs in the 2002, 2007 and 2008 academic years. Other variables we consider include ranking, enrollment, tuition, discipline concentration, the professor to student ratio, the concentration of female professors among faculty and the ratio of research to instructional expenses. We are also concerned with how the magnitude and importance of 1 professor salary determinants vary with the business cycle and if structural differences exist across time in salary determinants. We find that regional personal income and endowment have a positive effect on average salaries, while ranking has a negative effect.1 Research has a positive effect on salaries in the later years, and tuition is not a consistent determinant of salary. Results also seem to be stable over time for most years and professor rankings. 1 Since the better the rank is, the lower the number of that ranking is (first is better than second), we see a “negative” relationship, even though we traditionally think the higher the ranking the higher
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