This study analyzes a unique data set containing current salary and detailed job history information on a sample of 902 individuals drawn from 43 public U.S. Ph.D.-granting departments of economics. An analysis of current salaries by academic rank shows that 25% of Assistant Professors earn more that 50% of Associate Professors and 25% of Associate Professors earn more than 25% of Full Professors. Regression analysis suggests that salary inversion is most likely to exist between Associate and Assistant Professors and is more prevalent in lower ranked programs.Salary Inversion

Christiana Hilmer

Michael Hilmer

English

Research Papers in Economics

     
 
 
  
  
Volume 30, Issue 2 
  
Do Public Ph.D.-Granting Economics Departments Invert Salaries? 
  
 
 
Christiana Hilmer  
San Diego State University 
Michael Hilmer  
San Diego State University
Abstract 
This study analyzes a unique data set containing current salary and detailed job history information on a sample of 902 
individuals drawn from 43 public U.S. Ph.D.-granting departments of economics. An analysis of current salaries by 
academic rank shows that 25% of Assistant Professors earn more that 50% of Associate Professors and 25% of 
Associate Professors earn more than 25% of Full Professors. Regression analysis suggests that salary inversion is most 
likely to exist between Associate and Assistant Professors and is more prevalent in lower ranked programs.
 
Citation: Christiana Hilmer and Michael Hilmer, (2010) ''Do Public Ph.D.-Granting Economics Departments Invert Salaries?'', Economics 
Bulletin, Vol. 30 no.2 pp. 924-932. 
Submitted: Oct 15 2009.   Published: April 01, 2010. 
 
        
  1 
Salary determination is important for members of any profession.  Within the academe, a 
particular concern is how the salaries of newly-hired junior professors compare to those of senior 
professors with decades of work experience at the same institution.  In such environments, a 
common complaint among senior faculty is that due to the nature of the academic labor market, 
loyalty to one’s institution tends to be dismissed to such an extent that the salaries of senior 
faculty have become compressed, and even inverted, relative to those of the newly-minted 
Ph.D.s.  While such beliefs are disconcerting to the affected parties, most of the supporting 
evidence remains anecdotal rather than empirical.  
In their seminal paper on self-enforcing labor contracts with costly mobility, Black and 
Loewenstein (1991) develop a three-period model demonstrating how the dominant negotiating 
strategy for a department chairman who cannot directly observe each faculty member’s true 
moving cost is to front-load the contracts of newly hired Ph.D.s and to repeatedly offer below-
market salary adjustments to individuals who reveal higher innate moving costs by making the 
decision to remain at the initial institution rather than move to a new institution in subsequent 
periods.  According to their model, such predicted behavior suggests that negative returns to 
seniority should exist within academic labor markets.  Bratsberg, Ragan, and Warren (2003) and 
Moore, Newman, and Turnbull (1998) have found empirical support for this prediction for 
academic economists.  Yet, while not explicitly stated in their paper, the model developed by 
Black and Loewenstein predicts that under reasonable conditions, not only should negative 
returns to seniority exist but due to the optimal front-loading of contracts, the salaries of 
experienced senior faculty should be compressed enough to become inverted relative to those of 
new hires should those more seasoned faculty fail to publish enough to increase their 
marketability.  To our knowledge, among previous empirical studies of the market for academic 
economists, only Siegfried and Stock (2006) explicitly address the possible existence of salary 
inversion, with their data only enabling salary comparisons between 10 matched-pairs of faculty 
belonging to the same programs.  As such, while strong anecdotal priors likely exist, the 
empirical verdict remains unsettled concerning the degree to which salary compression and 
inversion exists with the academic economics profession. 
In our view, one of the main reasons that previous studies have failed to address this issue 
in a wide-scale fashion is that salary data is difficult to come by and as a result researchers are 
often left to analyze fairly limited samples.  In the modern information age (and thanks in large 
part to the Freedom of Information Act), this need not be the case.  To construct a large-scale 
data set that allowed us to examine the issue of salary compression and inversion, in August 
2007 we requested and received usable AY2007 salary data for 902 faculty members from 43 
public Ph.D.-granting economics programs listed among the top 106 NRC-ranked programs in 
the U.S.  We note that this large sample from a wide cross-section of institutions represents a 
dramatic improvement over the samples analyzed by Siegfried and Stock (2006), Bratsberg, 
Ragan, and Warren (2003), and Moore, Newman, and Turnbull (1998). 
Individual-specific non-salary data are collected from publicly-available sources.  Gender 
and current academic rank are determined from departmental websites and/or individual 
homepages.  Individual employment histories are determined from CVs that the vast majority of 
faculty members currently post on their individual homepages.  Individual-specific peer-
reviewed publication data through 2007 are collected from Econlit, which is the American 
Economic Association's bibliography of economics literature throughout the world.  The 
database currently contains information on articles published in more than 700 journals, 
including all the major field and general interest economics journals.  To account for potential    
  2 
differences in the quality and/or likely importance of different publications, we distinguish 
between three different types of publications: (1) articles in the top 5 economics journals 
according to Scott and Mitias (1996)
1
While these comparisons are interesting, the purpose of this research is to investigate if 
some portion of current Associate and Full Professors earn less than newly-hired Assistant 
Professors, all else equal.  The potential for salary inversion is captured by combining the 
, (2) articles in the remainder of their top 36 economics 
journals, which are primarily top field journals, and (3) articles in all other Econlit listed 
economics journals.  Finally, we rank economics programs according to Siegfried and Stock’s 
(2001) multi-tier breakdown of programs in the 1995 NRC rankings (1-6, 7-15 and 16-30, 31-60, 
and 61-106).   
For salary inversion to exist, the cross-rank distributions of current salaries must overlap.  
The box-plot of current salaries by current academic rank presented in Figure 1 suggests that, at 
least in raw terms, this is indeed the case.  Specifically, the top quarter of Assistant Professors 
earn more than nearly 50 percent of all Associate Professors, the top quarter of Associate 
Professors earn more than the bottom quarter of Full Professors, and the top quarter of Full 
Professors earn more than the bottom quarter plus some of all Named Professors.  Finally, the 
very top Assistant Professors appear to have current salaries that exceed those of many Full and 
even Named Professors.  Although these raw data do not control for differences in research 
productivity and program tier, it does appear that salary inversion may well exist for academic 
economists. 
To make the comparison more concrete, Table 1 presents summary current salary statistics 
across current academic ranks and program tiers.  Perhaps the most striking trend to emerge from 
these entries is the degree to which tier 2 programs (those ranked #7-#15) pay higher salaries 
than programs in the remaining tiers (those ranked #16-#98).
2  In particular, average salaries for 
individuals of a given rank within tier 2 programs exceed average salaries for individuals of the 
next highest rank within each of the three lower program tiers.  For instance, Assistant Professors 
within tier 2 programs average current salaries of nearly $107,000 while Associate Professors 
within tier 3, 4, and 5 programs average current salaries between $94,000 and $103,000.  At the 
same time, the maximum values presented in Table 1 indicate that there are currently many very 
highly paid economists on faculty within U.S. public Ph.D.-granting economics programs.  
Specifically, the highest-paid Named Professor in our sample receives a current annual salary of 
$342,142 while the highest paid Full, Associate, and Assistant Professors receive current annual 
salaries of $321,172, $277,378, and $144,445, respectively. 
Table 2 presents log current salary regression results that control for years of work 
experience, current academic rank, career research productivity, and gender.  Comparing across 
columns suggests that, all else equal, within each program tier senior professors are estimated to 
earn significantly higher current salaries than Assistant Professors.  The estimated current salary 
premia for the different ranks of senior professors are all largest for tier 2 programs and smallest 
for tier 5 programs, with the estimated premia for Associate Professors ranging from 13 to 33 
percent, for Full Professors ranging from 35 to 61 percent, and for Named Professors ranging 
from 57 to 73 percent.  As such, the results seem to indicate that salary compression is more 
pronounced with lower-ranked programs and less pronounced within higher-ranked programs. At 
the same time, top 5 publications are estimated to have statistically positive effects on salaries in 
all program tiers, with each additional top 5 article being associated with a current salary 
increase of between one and one-quarter and two percent.   Finally, all else equal, there are never 
statistically significant differences between the current salaries of males and females.    
  3 
estimated coefficients for the experience terms with those for the academic rank dummies and 
the research measure terms.  Because Associate and Full Professors differ from newly-hired 
Assistant Professors not only in terms of experience but also in terms of published research, the 
latter values are set to the average numbers for Associate and Full Professors in each tier.  The 
bottom panel combines the appropriate coefficients to estimate the number of years after which 
Associate and Full professors would be expected to earn less than new Assistant Professors.  The 
first column in the bottom panel indicates that within the full sample, holding all else constant, 
Associate Professors are predicted to earn less than new Assistant Professors after accumulating 
22 total years of experience, while Full Professors are predicted to earn less than new Assistant 
Professors after accumulating 51 total years.  A natural question accompanying these entries is 
whether such faculty members actually exist.  According to the second row in the bottom panel, 
21 percent of the Associate Professors possess 22 or more years of work experience while 0.5 
percent of Full Professors possess 51 or more years of experience.  As such, the results suggest 
the phenomenon of salary inversion exists mainly between Assistant and Associate Professors. 
To get a better idea of the root causes of salary inversion, it is important to consider in more 
detail the individuals for which salary inversion exists.  In general, within the U.S. economics 
programs, initial tenure and promotion decisions are made after the 6
th or 7
th year while 
promotion to Full Professor is expected by at least the 14
th or 15
th year.  For the full sample 
salary inversion is predicted to develop once individuals have accumulated 22 years of total 
experience while still holding to the rank of Associate Professor.  In other words, it appears that 
programs typically only invert salaries after individuals reveal themselves to have stagnated in 
their publishing to the extent that they do not merit promotion to Full Professor. 
Looking across the bottom panel of Table 2 suggests that tier 2 and tier 4 programs are 
quickest to invert salaries between Assistant and Associate Professors, with both doing so after 
21 years of experience have been accumulated by individuals still holding the rank of Associate 
Professor.  This, however, highlights the importance of considering whether such individuals 
exist, as among the 17 current Associate Professors within tier 2 programs only one possesses 
more than 21 years of experience.  Conversely, 23 percent of the 31 Associate Professors within 
tier 3 programs possess more than 23 years of experience, 26 percent of the 51 Associate 
Professors within tier 4 programs possess more than 21 years of experience, and 13 percent of 
the 71 Associate Professors within tier 5 programs possess more than 29 years of experience.  
Hence, it appears that elite programs are actually the least likely to participate in salary inversion 
while lower-ranked programs are much more likely to do so.  This is not surprising when one 
considers that elite programs likely develop their reputations because they place a higher 
premium on retaining only highly prominent faculty and they are therefore willing to pay top 
dollar to senior faculty and are unwilling to tenure individuals who are not fairly certain to 
become highly prominent.  Conversely, because lower-ranked programs are likely less-stringent 
in their tenure standards, they are more likely to have tenured faculty who prove to be 
undeserving of ever being promoted to Full Professor and therefore are in line to have their 
salaries inverted. 
We note that our analysis potentially suffers from certain data limitations.  For one, due to 
the data collection process, we are only able to examine public Ph.D.-granting economics 
programs.  As such, we suppose that it is possible that the empirical evidence is different for 
faculty within private programs.  Second, given that we only examine faculty within economics 
programs, we do not claim that these results are generalizable to faculty members within all 
disciplines.    
  4 
Notes 
                                                 
1   These are the American Economics Review, Econometrica, the Journal of Political Economy, the Quarterly 
Journal of Economics, and the Review of Economics and Statistics. 
2   Tier 2 programs are UC Berkeley (#7), Minnesota (#10), UCLA (#11), Michigan (#13), and Wisconsin (#15).    
  5 
References 
 
Black, Dan A, and Loewenstein, Michael A. (1991). “Self-Enforcing Labor Contracts with 
Costly Mobility (the Subgame Perfect Solution to the Chairman's Problem)” Research in Labor 
Economics 12, 63-83. 
 
Bratsberg, Bernt, James Ragan Jr,  and John Warren (2003) “ Negative Returns to Seniority: 
New Evidence in Academic Markets” Industrial and Labor Relations Review 56, 306-23. 
 
Moore, William, Robert Newman, and Geoffrey Turnbull (1998) “Do Academic Salaries Decline 
with Seniority?” Journal of Labor Economics 16, 352-366. 
 
Ransom, Michael (1993) “Seniority and Monopsony in the Academic Labor Market, American 
Economic Review” 83, 221-233.  
 
Scott, Loren C. and Peter M. Mitias (1996) “Trends in Rankings of Economics Departments in 
the US.: An Update” Economic Inquiry 34, 378-400. 
 
Siegfried, John J. and Wendy Stock (2001) “So You Want to Earn a Ph.D. in Economics? How 
Much Do You Think You Will Make?” Economic Inquiry 39, 320-335. 
 
Stock, Wendy and John J. Siegfried (2006) “Where Are They Now? Tracking the Ph.D. Class of 
1997” Southern Economic Journal 73, 472-88. 
 
 
    
  6 
Figure 1 
Salary Box-Plots by Academic Rank 
 
 
 
 
 
 
0 100000 200000 300000 400000
FY06 Salary
Assistant
Associate
Full
Named   
  7 
Table 1 
Summary 2006 Salaries by Program Tier and Academic Rank 
 
 
 
                           All Faculty  Tier 2  Tier 3  Tier 4  Tier 5 
                                          Assistants  Average  90,213.24  106,576.10  88,215.06  86,646.45  83,113.86 
      (14,072.27)  (15,355.27)  (11,947.60)  (7,758.75)  (9,421.40) 
                        Minimum  60,000.00  74,124.00  68,353.00  68,579.00  60,000.00 
                        Maximum  144,445.30  144,445.30  142,278.00  107,000.00  116,900.00 
                        Observations  208  43  55  53  57 
                                          Associates  Average  103,560.50  153,698.70  99,417.61  102,870.60  93,859.96 
      (28,937.81)  (49,879.82)  (16,888.84)  (23,303.45)  (15,132.67) 
                        Minimum  70,039.00  77,343.00  74,200.00  70,039.00  71,962.00 
                        Maximum  277,377.80  277,377.80  136,909.60  187,200.00  135,765.00 
                        Observations  170  17  31  51  71 
                                          Full  Average  139,190.50  182,020.20  137,645.00  126,209.20  119,607.80 
      (43,553.91)  (54,173.92)  (35,908.51)  (27,570.34)  (29,054.74) 
                        Minimum  81,900.00  88,741.00  68,353.00  82,000.00  81,900.00 
                        Maximum  321,172.00  321,172.00  142,278.00  191,352.00  224,695.00 
                        Observations  395  84  95  118  98 
                                          Named   Average  182,923.80  227,186.40  174,652.80  164,094.30  171,713.20 
      (52,772.31)  (47,867.30)  (40,635.22)  (47,019.86)  (49,282.51) 
                        Minimum  90,500.00  138,500.00  117,900.00  90,500.00  103,035.00 
                        Maximum  342,141.90  342,141.90  313,000.00  315,838.60  274,667.00 
                        Observations  129  31  21  44  33 
                       
  8 
Table 2 
Log Salary Regression Results Overall and by Program Tier 
 
                     All Faculty  Tier 2  Tier 3  Tier 4  Tier 5 
                                    Experience  -.0118**  -.0198**  -.0094  -.0133**  -.0060 
   (.0037)  (.0085)  (.0062)  (.0072)  (.0073) 
                  Experience Squared  .0001  .0002  .0000  .0002**  .0001 
   (.0001)  (.0002)  (.0001)  (.0001)  (.0002) 
                              Associate Professor  .2130**  .3341**  .1658**  .2241**  .1332** 
   (.0303)  (.0844)  (.0497)  (.0636)  (.0516) 
                  Full Professor  .4778**  .6082**  .5177**  .4562**  .3490** 
   (.0372)  (.0869)  (.0702)  (.0748)  (.0681) 
                  Named Professor  .6584**  .7334**  .7052**  .6427**  .5699** 
   (.0449)  (.1036)  (.0989)  (.0771)  (.0882) 
                  Top 5 Articles  .0168**  .0159**  .0190**  .0128**  .0200** 
   (.0028)  (.0050)  (.0055)  (.0064)  (.0054) 
                  Top 36 Articles  .0041**  .0060**  .0016  .0079**  .0036 
   (.0021)  (.0035)  (.0034)  (.0031)  (.0029) 
                  Other Articles  .0019**  .0019**  .0024  .0009  .0023** 
   (.0007)  (.0019)  (.0021)  (.0013)  (.0010) 
                  Male  -.0036  .0855  -.0220  -.0196  -.0320 
   (.0157)  (.0367)  (.0309)  (.0293)  (.0293) 
                                    R-Square  .6573  .5874  .6386  .5501  .6266 
                  Observations  902  175  202  266  259 
                 
            Years Experience After Which a New Assistant Professor Earns More Than An Associate 
    22  21  23  21  29 
            Percentage of Associate Professors With That Much Experience  
              .206  .059  .226  .255  .127 
    Years Experience After Which a New Assistant Professor Earns More Than A Full Professor 
    51  39  68  43  74 
            Percentage of Full Professors With That Much Experience 
              .005  .107  .000  .025  .000 
           
 
 
Notes:  Dependent variable is the log of the individual’s 2006 salary.  Values in parentheses are 
heteroskedasticity consistent standard errors.  **
, * indicate significance at the 5 and 10 percent levels.  
The first column regression results also includes program tier dummies (tier 2 omitted). 
 

Do Public Ph.D.-Granting Economics Departments Invert Salaries?

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