In most countries, academic pay is independent of discipline, thus ignoring differences in labor market opportunities. Using some unique data from a comprehensive research assessment exercise undertaken in one such country -- New Zealand -- this paper examines the impact of discipline-independent pay on research quality. I find that the greater the difference between the value of a discipline's outside opportunities and its New Zealand academic salary, the weaker its research performance in New Zealand universities. The latter apparently get what they pay for: disciplines in which opportunity cost is highest relative to the fixed compensation are least able to recruit high-quality researchers. Paying peanuts attracts mainly monkeys.The point is that researchers respond to opportunity costs and incentives (as discussed in a previous post). Boyle's finding holds not only in academia, but also in a recent review of the Bank of Canada:
An external management audit on the Bank of Canada's research unit showed the country's central bank could benefit from a staff and officer upgrade.
The review team made up of five leading U.S. economists said the bank's economic researchers are underpaid, focused on micromanagement and investigates irrelevant topics. The bank has 42 staff on its research department.
Reviewer Martin Eichenbaum, an economics professor at the Northwestern University in Illinois, said the Bank of Canada must improve its research capacity for the institution to be able to keep up with the major developments in economics and finance.
"You can't run a good policy without a first-class team... You're talking about decisions that affect people's lives here," Eichenbaum told the Globe and Mail.
Among the body's top recommendation is for the bank to increase the salaries of its PhD economists by $15,000 to $20,000 from their current pay of $90,000 per annum for it to attract the best minds. The $90,000 pay is the equivalent of a professor's pay at a second-tier Canadian university only.
It turned out some of the bank's researchers had no other job offers when they accepted the work at the Bank of Canada, prompting the team to comment, "This salary structure seems like a clear recipe for mediocrity rather than excellence."
The review was completed by the U.S. team in February, but posted in the Bank of Canada's website this month.