Higher Education Strategy Associates

Hiring Decisions

One of the more thoughtful replies I received to my piece on CAUT’s politicization of university accounting pointed out that one of the reasons people didn’t trust university accounting was because they made seemingly incomprehensible decisions with respect to hiring.  How was it, my reader asked, that there was plenty of money to hire sessionals but never money to hire full-time, permanent faculty?  Isn’t that money fungible?  Why spend on one and not the other?

I can see why this might be puzzling if you’re used to seeing budget decisions in annual terms, but it’s actually fairly simple.  Yes, on an annual basis, one new assistant professor might cost the same as eight sessionals (or whatever – pick a number), but on a longer-term accounting, it’s a completely different story.

At this point I should point you to a recent piece by Carleton University’s Nick Rowe, entitled “University Budget Surpluses: Irreversible Investment and Uncertain Demand” which lays out the basic challenge in accounting for academic staff on the university’s books.  (This, by the way, is not the only Nick Rowe piece on universities you should read – everybody should read, and I mean now, his “Confessions of a Central Planner” which is the best thing ever written on university finance ever, by anyone.  Seriously, it’s genius).    I am doing a bit of violence to Rowe’s argument (which is somewhat broader than the case I am making here), but the simple version is this:

University income are uncertain – and in fact getting more uncertain all the time as universities increasingly become more dependent on market operations (i.e. money from students, both domestic and international).  That’s not the fault of anyone in the institution: that’s simply the way public policy has been moving for the past few years.  Now, if you’re a provost or a VP Finance trying to plan for a future, what’s the absolute last thing you want to do?  Add permanent costs.

Well, as Rowe points out, hiring a full-time prof is about as permanent a cost as it gets.  In fact, given the way tenure works and how collective bargaining agreements are written and the fact that retirement is increasingly a thing of the past, a new hire is pretty much the same category of investment as a new building: it’s going to be there for 40 years, minimum.  A new assistant professor should not be viewed as an $85,000 annual cost ($100K with benefits); he or she should rather be viewed as something like an extremely illiquid $6 million asset.

The analogy here is one with personal finances: say you were being paid $100,000 per year and you’re debating whether to buy a house or keep renting.  Then someone came along and said: listen, we’re going to pay you $80,000 and pay you a bonus of between $10,000 and $25,000 per year.  In all likelihood, this means you’ll end up right about at $100,000, but there’s a non-trivial chance that your pay may fall below that level.  Quick: are you now more likely to take on the responsibility of a mortgage?  Or do you stick with renting?  Not everyone will have the same answer here, but certainly most would consider the latter to be the “safer” option.

In any case: institutional policy on temporary vs. permanent hires is probably not a gauge of miserliness or what have you.  A more accurate analysis would suggest that such policies are actually a function of institutional confidence in future revenues.  Where institutions feel good about the future, they will make full-time hires; where they are less confident temps will be hired more often.  That’s not something anyone ever says out loud, for obvious reasons, but it is nevertheless a perfectly sensible long-term planning perspective.  No conspiracy theories about university budgeting practices required.

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4 Responses to Hiring Decisions

  1. Nick Rowe says:

    Thanks Alex! Good post.

    ” A new assistant professor should not be viewed as an $85,000 annual cost ($100K with benefits); he or she should rather be viewed as something like an extremely illiquid $6 million asset.”

    Yep. An extremely illiquid $6 million asset financed by a $6 million implicit mortgage on the university’s future income from the students the prof will teach over the next 40 years. It is much easier to sell a house than a prof if you find you can’t afford the annual payments.

  2. Nick Rowe says:

    I forgot to add: universities will be a lot more confident about making permanent irreversible investments when they know that demographics are on their side and so enrolment will grow on average. That is less likely now than in the past.

  3. Jim Sentance says:

    I’ve always thought more or less along the same lines, but given that, my question regarding administration attitudes to hiring is why such a penny pinching approach to doing the hiring if its a multimillion dollar investment? When hiring we have to push push push to get approval to send anyone to the CEEE hiring meetings in Toronto, and don’t even ask about sending someone to the ASSA meetings. When we do get funding for the CEEE its usually partial, and on occasion its been at the cost of bringing an additional candidate in. Can’t say we’ve done badly in terms of outcomes,but the attitude does fly in the face of the importance of the decision.

  4. Bill Lee says:

    Having seen the screams by profs when a defined benefit pension plan is changed to a defined contribution pension plan (and the “market-stock-bond” goes down), you have to figure in about 10% a year contributions-a-year for a long pension (though now with no forced ‘retirement’ at 65 (You lose some privileges and your grad student quota goes to zero, etc.) number-pensioning-years might be lower) so they can hang on for decades of less-than-useful scholarship, it is wonder that Unis hire any full-time hopefuls.

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