DP11638 How Much Is That Star in the Window? Professorial Salaries and Research Performance in UK Universities

Author(s): Gianni De Fraja, Giovanni Facchini, John Gathergood
Publication Date: November 2016
Keyword(s): Higher education competition, Research Excellence Framework, Research funding, Salary inequality, University sector
JEL(s): D47, H42, I28, L30
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11638

We study the relationship between academic salaries and research performance. To this end, we use individual level data on the salary of all UK university professors, matched to results on the performance of academic departments from the 2014 government evaluation of research. The UK higher education sector is particularly interesting because professorial salaries are unregulated and the outcome of the official research evaluation of universities is one of their key financial and academic concerns. We first present a simple model of university pay determination, which shows that pay level and pay inequality in a department are positively related to performance. Our empirical results confirm these theoretical predictions; we also find that the pay-performance relationship is weaker for the more established and better paying universities. Our findings are also consistent with the idea that higher salaries have been used by departments to recruit academics more likely to improve their performance.