Are Professors' Salaries too High?

Abstract

Using the model by Vaihekoski (2005), this paper investigates whether professors are over- or underpaid. Empirical analysis is performed using tenured Finnish professors' salary data against the salary and unemployment data for comparable peer employee groups. The results suggest among other things that professors' salaries should vary according to their peer groups' salary. Professors in most of the analyzed disciplines have too low salary, although an example of the opposite was found. Finally, the model suggests that the professors should be compensated with a higher salary on average if their salary is changed to the performance-based compensation system as in Finland from the beginning of 2006.