On Sunday night, the University of Manitoba and its faculty union hashed out a tentative deal to end a three-week strike.  No details are publicly available yet, but I think the dispute – and the likely strategies used to resolve it – are a useful way of understanding some general concepts around the economics of universities in Canada.

Directly or indirectly, institutions get their operating funds from having students sit in classrooms.  Tuition fees are directly related to credit hours and government operating grants are usually at least indirectly related to them.  One might question this in a place like Manitoba, where there is no actual funding formula and money is just handed out as a block on a historical basis, but as I showed back here the distribution of funding between Manitoba institutions actually looks almost exactly like it would if the province were using a weighted enrollment formula system like Quebec’s or Ontario’s.  So we can more or less dispense with that argument and make the simple equation “bums in seats” = revenue.

The main issues at play in the Manitoba dispute were related to salaries (faculty want more) and workload (faculty would like to limit management’s ability to increase it).  Now, if you want a big rise in pay, the university needs to find revenue to compensate.  In general, the way Canadian universities have been meeting faculty pay demands over the last six years or so is to raise enrollment, in particular international student enrollment, because it usually brings in more dollars per student.  On the whole, they’ve been reasonably successful at doing so. But the other faculty demand – maintained or reduced workloads – makes this a difficult trick to pull off.  Even if you fully accept the logic behind reducing workloads, the fact that revenue is a function of bums in seats means that faculty’s two goals are essentially incompatible.  Effectively, what is being demanded is that the university spend more and earn less.

Absent a major tuition increase, there are only two ways to square this circle.  The first, which the faculty association likes to talk about at great length is that the university can afford to do both because there are millions of dollars being salted away in various nefarious ways (which for the most part is nonsense because what on earth so senior administrators possibly have to gain by not spending money?) or, frivolously spent on fixing buildings or that old favourite “administrative bloat”.  While it’s certainly true some non-academic expenses have been rising, an awful lot of those increases have been concentrated in areas like IT and student services rather than everyone’s favourite bogeyman of “central administration”.  Undoubtedly some savings could be found in these places and diverted to faculty salaries, but they would be unlikely to do the trick entirely.  According to data from the Financial Information of Universities and Colleges (FIUC), the U of M’s entire “academic salaries” budget was just over $158 million in 2014-15; a 6.9% increase would mean an $11 million hit just in salaries plus another $2 million (roughly) in benefits.  In contrast, the entire budget for salaries in central administration is $22 million.

The second way of dealing with the problem is to allow faculty salaries to rise while simultaneously lowering the average cost of instructors.  A contradiction in terms?  Well, no.  All one has to do is hire more sessionals.  Since they are remunerated at – effectively –about a quarter of the rate of a full-time professor  it’s possible to both increase bums in seats (i.e. revenue) and keep the increase in average instructional costs to well below 6.9%.

I obviously don’t know what’s in the agreement reached Sunday night and there’s not going to be anything in the agreement which explicitly says “let’s go hire more sessionals”.  But it’s implicit in the logic of the faculty’s demands.  Universities don’t like to admit this is how they deal with faculty pay hikes because they are wary of charges of “cheapening” undergraduate education, and faculty unions don’t like to admit this is what happens because GOD FORBID their pay demands have negative externalities.  Still, both sides know exactly how this process works and neither side can claim the least bit of innocence in the process.

It’s the way the game is played.