Abstract
Wage setting methodologies for university faculty may be merit/market based or administered. Failure to exploit the fact that faculty productivity depends on abilities and wages results in inefficient use of university budgets. If such inefficiencies exist it suggests suboptimal productivity of the existing faculty and the inability to attract new qualified faculty. As motivation for this analysis, a simple model of university faculty “output” maximization is presented. Efficient budget allocation requires that faculty compensation be structured so that marginal productivities are equated across faculty. This paper examines and compares the efficiency of several regional universities in the US, identified as “peers”, employing the Data Envelopment Analysis (DEA) estimation method. The results suggest the existence of inefficiencies and more notably, that the homogeneity assumption regarding the peers is questionable.
Highlights
Introduction and Related LiteratureThe topic of university faculty salaries has been addressed frequently through research with varying focal points of interest. Cohn (1973) develops a multiple regression model to analyze the factors that might have an effect on faculty salaries
The differential between faculty salaries at public and private universities is reported by Smallwood (2006) from a survey conducted by the College and University Professional Association (CUPA) for Human Resources
Universities with larger proportions of budget allocated to teaching staff are assumed to be more productive i.e., to have higher efficiency
Summary
The topic of university faculty salaries has been addressed frequently through research with varying focal points of interest. Cohn (1973) develops a multiple regression model to analyze the factors that might have an effect on faculty salaries. The empirical results of this study are dated and of limited applicability to the current economic situation of university professors and their pay, many of the model’s independent variables that are identified still have explanatory power today These include the type of institution, whether it is public or private, geographic location, quality measures, institution size, and state per capita income. Alexander (2001) analyzes the impact that the growing disparity between faculty salaries at private universities compared to those at public universities is having on the ability of public institutions to attract and retain top-notch faculty He describes the potential for the development of two separate higher education systems, one private and the other public. Some of the more notable and most frequently cited of these include; Farrell (1957), Aigner et al, (1977), Kumbhakar and Wang (2006) among others
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