It's Good to Be in Demand

A July 29 New York Times article reports that many state universities have begun to charge higher tuition rates for certain majors like engineering and business. One factor mentioned by university officials in driving the increases is “ high salaries commanded by professors in certain fields.” The article quotes G. Dan Parker III, the associate executive vice president of Texas A&M. Mr. Parker said, “The salaries we pay for entering assistant [business] professors on average is probably larger than the average salary for full professors at the university. That’s how far the pendulum has swung at the business schools, and I sure wish they’d fix it.”

I am not sure who Mr. Parker thinks “they” are, but using some simple demand and supply curves can give us an idea. As shown in the adjacent graph analyzing the market for business professors in the United States over the past few years, rising pay for business professors is consistent with an increase in demand for business professors. What would then cause salaries to fall? Salaries will decrease when one of two things happens: when demand falls or when supply increases.

“They” in this case is him, Mr. Parker. Universities demand the services of business professors. So, people like Mr. Parker (although I must confess I don’t exactly know what an associate executive vice president does – I think this breaks the rule for the number of adjectives that should be placed in front of a noun) can either decrease their demand (unlikely to be a wise choice given that student demand for business education does not appear to be decreasing markedly) or they can work to increase the supply by producing more business professors. I don’t see any other “theys” out there who are going to fix the problem.

Aahh – the power of simple supply and demand analysis.