Feb 22, 2005

Economists Gain Star Power

Hot Demand Lifts Salaries,
As Elite Universities Seek Big Names

By TIMOTHY AEPPEL
Staff Reporter of THE WALL STREET JOURNAL
February 22, 2005; Page A2

The tug-of-war over star academic economists is heating up, as U.S. universities continue to expand economics departments and revamp the way they teach the subject.

Harvard University is wooing Matthew Rabin of the University of California at Berkeley, a "behavioral economist" who seeks to explain why people don't always act in the rational ways that economists often expect.

The 41-year-old Mr. Rabin, best known for his research on the subject of procrastination and fairness, uses complex mathematical formulas to study human behavior. In 2001 he won the John Bates Clark Medal -- the top award for young economists -- and in 2000 was awarded the MacArthur Foundation's "genius" award, given annually to outstanding scientists, writers and artists.

Mr. Rabin confirmed that he is considering an offer from Harvard but declined to discuss the issue further.

The growing quest for economic talent is largely a response to market forces. Economics is the leading major at many top schools, including Harvard, where 15% of undergraduates major in the subject. Universities figure top-name professors will help recruit the brightest students.

"When you recruit top people, it also makes it easier to recruit top junior faculty," says Jose Scheinkman, an economist at Princeton.

The scramble for talent has driven up salaries. According to the Bureau of Labor Statistics, salaries for economics teachers, a category that includes professors, averaged nearly $140,000 a year -- based on a 52-week year -- in 2003, making it one of the highest-paid professions that the government tracks. But at the elite colleges, economics professors can earn substantially more, with some senior faculty commanding $150,000 to $250,000 for nine months' work. Other forms of compensation such as housing subsidies and signing bonuses can be used to bolster pay packages. Superstars, such as Nobel Prize winners, can earn in excess of $300,000.

By comparison, a leading English or history professor at a top school rarely makes more than $180,000, and average pay is far lower.

Universities increasingly are tapping economists to work in business schools, which traditionally pay higher salaries than other specialized institutions. There is also a much more uniform view among economists about who is a star, which helps focus the recruiting efforts of would-be employers.

The sheer growth of the field also is playing a role, as schools rush to expand their programs. Among the most ambitious is New York's Columbia University, which is enlarging its department from 28 to the equivalent of 41 full-time professors, plus an additional five visiting professors each year. Such growth has helped create a hiring rush at all levels.

But while demand for academic economists has grown, supply hasn't. According to the National Science Foundation, U.S. universities churned out 1,051 Ph.D. economists in 2003, the last year for which figures are available. The number has held roughly steady for a decade.

Timothy Bresnahan, chairman of the economics department at Stanford University in California, says there is strong interest in the relatively young crop of economists who received Ph.D.s in the 1990s and are focusing on using economic theory to address issues such as crime and school reform. "These people are using economic principles to study things which are wrong and are looking for ways to fix it," Mr. Bresnahan says, noting that this new branch of the discipline is helping to make economics more academically vibrant and attractive to students.

Stanford has a half-dozen economics openings, mostly the result of a recent retirement wave. One star candidate Stanford hopes to recruit is Caroline Minter Hoxby, a 38-year-old Harvard economist who has become a favorite of the Bush administration for her study of the economics of school reform.

Ms. Hoxby's research supports a number of controversial positions, including the idea that teachers' unions lead to poorer school performance and that competition from private schools makes for better public schools. "I like doing things because it's good economics. I'd never do anything for ideological reasons," she says.

Many universities want star professors who can help reshape how they teach economics. David Cutler, an economist and dean of social sciences at Harvard, notes that it has become more important to integrate economics with other specialties such as medicine and psychology. That is one reason Harvard is recruiting Jonathan Cohen, a Princeton psychologist who specializes in "neuroeconomics," the study of what happens in the brain when people make economic decisions. Mr. Cohen declined to comment.

"I don't know whether we would have been interested in him a few years ago," Mr. Cutler says. Harvard is expanding its economics department, though Mr. Cutler declined to specify how many professors the university is looking to hire.

Mark Gertler, chairman of New York University's economics department, says part of the challenge of recruiting is holding on to your own stars while trying to lure others from elsewhere. "Two of our senior faculty members have offers and we'll fight very hard to keep them," he says.