Should Canadian professors be paid in US dollars?

A recent study claims that Canadian university professors are - as the Toronto Star put it -  "the best-paid in the world".

The media reports should be interpreted with caution. The study is restricted to professors at public universities, hence excludes the highest earning academics in the US and, possibly, other countries. "The world" turns out to be a selection of 28 nations, including countries as diverse as Nigeria, Latvia, Saudi Arabia and South Africa. A number of wealthy nations such as Austria, Switzerland, and Sweden are excluded. The quality of the salary data varies from country to country. The Canadian figures, which are based on Statistics Canada's census of Canadian academics, are very accurate. The salary estimates for some other countries are based on lower quality data sources.

Despite these caveats, I suspect Canadian academics are fairly well paid, compared to those of other nations.

The academic job market, at least for economists, is global. Canadian, Asian, European and other universities all recruit at the American Economics Association's annual meetings. A typical job candidate may apply for - and seriously consider - positions on three different continents. 

Prior to around 2008/9, Canadian universities were hiring aggressively, and the competition for the best new graduates was intense. Many new hires coming in at this time also had job offers from US institutions. Canadian universities attempted to match those job offers. Since the Canadian dollar was then trading at $0.65 or $0.70 US, the resulting salary offers weren't too bad. (Some senior faculty were also able to ratchet up their salaries with outside job offers.) 

Since that time, the Canadian dollar has appreciated considerably. Yet professorial salaries have not changed in response. Professors generally have some flexibility when it comes to negotiating a starting salary. However once the person is on the tenure track, there is typically fairly little room for discretion in annual merit pay and other increments. "Intercept negotiable, slope fixed" is a four word description of academic salary determination. Consequently Canadian university professor's salaries have risen in US dollar terms.

Most other Canadian workers have seen similar benefits from the rise in the Canadian dollar. A person working behind the counter at a Toronto Tim Hortons probably earns more than fast food employees in most other countries, even using purchasing power adjusted exchange rates. Yet university professors are different in that we - at least those of us who work in research-intensive positions - claim to be part of an international job market.

If that is true, should we, like professional athletes, be paid in US dollars, to ensure that our salaries reflect the state of that international job market?

Comments

[Patrick]

Sounds like a terrible idea. I suspect I'm not getting the satire.

[Frances Woolley]

Patrick - glad you think so! It isn't deliberately satirical, though I guess I am asking people to think through the implications of "I am a world-famous researcher; I compete in the global market place and my salary should reflect this."

One reason it's a terrible idea is that people aren't uniformly over-paid - it depends a huge amount on when you were hired - people who were hired in good times can receive much higher lifetime salaries than comparably qualified people who were hired in hard times.

[Joseph]

The salary differentials between current academics is a major issue. But I suspect that it could be, at least partially, solved by giving academic chairs a lot of flexibility in salary increases. Make salary increases less fixed and more market driven. In general the issue of "salary compression" is a big one here in the United States as well. In my own department, we recently had to deal with a full professor being paid less than the starting wage for an assistant professor (and asking, seriously, if they could apply for the assistant professor job -- which was a good tactic if you think about it - the promotion to associate had another automatic wage increase and they could certainly have gotten that promotion extremely fast).

Actually setting wages in US dollars is only going to work if the professors are so overpaid that they can hedge currency risk. I have suffered a lot of this from moving to the US at the wrong moment with debts in Canadian dollars (e.g. student loans). I shudder to think of having a mortgage in Toronto with a risk of my salary collapsing by a third due to currency shifts.

[Frances Woolley]

Joseph - fascinating, thanks for sharing those stories.

[Jack]

Paying salaries in US dollars could help attract very mobile international faculty who are likely to switch jobs several times during their career and go back and worth between, say, Canada and the US. But such faculty are very rare. Most of us would like to settle, grow roots, invest in our Department, University, and students; build ties. For 99% of faculty, it doesn't seem like a good idea. (Note that in NHL hockey, players can be reasonably expected to switch teams at least once, and likely from Canada to the US and back, etc. So paying them in US dollars makes sense, although I would expect PPP adjustments!)

Re: the article and original study, sometimes no study is better than a lousy study. I don't see how you can make any comparisons at all using the data sample they have. A better idea would have been to pick equal-level universities across different countries e.g. based on international rankings of published research, and compare those salaries. For example, US public universities tend to be rural or suburban, while Canadian (and European?) universities (all public, or nearly all so) tend to be urban. When I taught in the US, I could afford to live within walking distance of campus. In Canada, I cannot (and I don't even like in Toronto or Vancouver!).

[Determinant]

Paying workers in foreign currency is a terrible idea on a personal level. One summer I worked at a manufacturing plant in my city's south end. It was French-owned and there was a French exchange engineer there. He was doing some sort of "apprenticeship" program in France (not the actual term) which meant his salary was tax-free, but he was paid in Euros. His pay was modest all the same and every time the Euro fluctuated against the Canadian dollar his household budget took it on the chin.

Workers should be paid in local currency where that currency fluctuates, the only time this does not apply is in a fixed exchange rate environment. For instance, the Bahamian Dollar is pegged to the US Dollar and US dollar notes circulate freely at par for retail exchanges.

[Bob Smith]

"Workers should be paid in local currency where that currency fluctuates, the only time this does not apply is in a fixed exchange rate environment."

Presumably, that's a choice people should be able to make. I remember some of my former colleagues in law school were crowing about getting hired by the Toronto offices of big US law firms because they were paid both the going rate in the US (considerably more than in Toronto AND you didn't have to live in New York City) and in US dollars (in the days of the $0.60 dollar). They all thought they'd won the lottery - not so much now (although I doubt many of them still work for those firms, so maybe it wasn't a bad deal for them).

That being said, I'm not sure it would be a great idea for the university - it's revenue are all in Canadian dollars. You'd hate to think what would have happened to tuition in the mid-1990's if Universities were paying their professors in US dollars.

[JC]

It would be interesting to see a study by discipline. I would guess that, due to the union strategy of flattening wages across disciplines, economists in Canada may earn relatively lower salaries compared to the average in the US, while Canadian professors in some other disciplines (less competitive, less worldly?) may earn relatively higher salaries. For example, at my university most economists' starting salary are at the top of the pay scale for assistant professors, due to market pressure. But the slope depends on the intercept. If you start at the top, your annual increments are lower than profs who start farther down the pay scale and after a few years, the economist salaries are no longer competitive. If this is a common goal with the other faculty unions, this might help explain why Canadian professors earn a high wage on average, and also why this seems at odds with what we see in the market for economists.

[Frances Woolley]

JC "I would guess that, due to the union strategy of flattening wages across disciplines, economists in Canada may earn relatively lower salaries compared to the average in the US"

My CJE paper with Chris Worswick and Casey Warman looks at earnings differentials across disciplines in Canada, but I don't think we compared them with those in the US - though our paper does have a survey of the relevant literature. Certainly what you say describes the Carleton environment pretty accurately - the junior economists experience pretty large salary premia over people in other disciplines, but everything is very compressed at the top end. When I looked at this year's salary disclosure info, I was surprised to see how small the earnings gap between me and some of my junior (untenured!) colleagues was.

Bob - university revenue is all in Canadian dollars

Yup, that's a pretty devastating critique of the paying profs in US dollars idea.

[hosertohoosier]

I suspect that Canada's seemingly high salaries are partly an artifact of the geography of our universities. Far more of them are located in urban centres with high costs of living. Between York, Toronto, Ryerson, UBC, SFU, McGill, Concordia, U de Montreal and others you've surely got a solid majority of professors.

The concentration of say, econ professors in the US, in contrast, is much more diffuse ( http://www.bls.gov/oes/current/oes251063.htm ). After all, you have a much greater prevalence of different types of universities, like small liberal arts colleges, and bi-directionals which are often in small towns by design.

As an ABD on the job market, most of the US jobs in my field tend to be in small towns with a low cost of living - usually these are places where you can by a decent house for $100,000 (with lower taxes, and lower consumer prices as well).