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This question is not about PhD students, but about professionals with PhD degrees. To narrow down the scope even further, let my subject be a computer science PhD seeking a job in Europe. (I'd include the USA as well, but I'm afraid the dynamics are not the same. However, feel free to include relevant comparisons and data in the answers when needed.)

The salary of such a professional, if they stayed in academia, will be probably lower than if they chose to get a job in industry.

What is the economic incentive behind the university policy to not have higher, more competitive salaries when compared to industry?

I know that state institutions are (at least partially) on the government budget, so they arguably have little say in the matter. However, private institutions are significantly more independent in their organization. Basically, isn't it in the institutions' best interest to have the "best pick" of PhD graduates, instead of competing against the lure of a higher pay?

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    Usually, academia is more research oriented. You are free to research whatever pops in your mind. Plus you can teach cool and modern topics to graduate students which is always a lot of fun. Such freedom is not present at the industry. So, many many people prefer the academic freedom even if salaries are a fraction of industrial ones. – PsySp Sep 15 '17 at 10:55
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    Universities have less money. – JeffE Sep 15 '17 at 11:30
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    Given how many people currently fight for each faculty position, we can be lucky that faculty salaries are still as high as they are. – xLeitix Sep 15 '17 at 15:43
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    @GennaroTedesco I am not a tenure awarded professor, and I spend the vast majority of my time researching whatever pops into my mind. Also, "supervisor" isn't really an accurate description of anyone above me in rank, and they definitely don't define my research agenda. – Fomite Sep 15 '17 at 21:21
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    @KevinMcKenzie It will be pretty hard to get hired, get tenure, get grants, get graduate students at a large research university without producing results. The real difference is that companies do not welcome risk. Or maybe I should not take ghost busters comments seriously.. – Sasho Nikolov Sep 15 '17 at 21:42
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I highly doubt university salary policies are based on "economic incentive", especially in European countries where universities are directly funded by the ministry of education. Generally, political, not economic reasons prevail.

That aside, competition for academic positions is already fierce - there is simply no need to offer higher salaries to attract candidates. Currently, candidates are attracted by reputation, the thirst for knowledge, and similar non-monetary considerations. It is by no means clear that higher salaries would attract better candidates: you would have to argue that someone who simply follows the money would make a better researcher than someone who is willing to put in long hours at low pay for the dream of someday being allowed to put "Prof. Dr." in front of their name!

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    Good answer. Certainly, a maître de conférences in France is probably much more prestigious for a young and good researcher after the PhD than any industrial job, especially in maths etc. Even if the salary is tiny in comparison to what someone could get e.g. in an investment bank etc. – PsySp Sep 15 '17 at 11:30
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    Good answer. However, it is not just "following the money" vs "dreaming to be called Prof. Dr.". I'd argue that the main reason why competition for academic jobs is fierce is that there are way too many PhDs for each professor job opening. And many PhD's don't leave their field because they do not have the skills to work elsewhere. If my reasoning is correct, computer science professors in private institution should receive competitive salaries. Anybody who can comment? – famargar Sep 15 '17 at 12:24
  • Comments are not for extended discussion; this conversation has been moved to chat. – aeismail Sep 16 '17 at 17:28
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I don't know about other countries, but in Germany, you will have some other benefits from staying in academia (at least if you can get a position as a professor) that you will not have in the industry (google "Verbeamtung" for more details). One of them is the security that your company (the university) will not suddenly decide to fire, replace or transfer you, so you can be rather sure that you will have this job for the next 40-something years; something that might be nice for long time planning. There are other benefits, like health benefits, etc. - if you are interested in that feel free to google it.

So you have to decide between possible high income, but with risks, or lower (but still quite good) income that is rather secure.

That is, of course, only one reason. There might be many different reasons to go into industry or academia, there might be as many as there are people in both areas, but as you explicitly mentioned the money, I think risk vs. security might be a big point to make up for this gap in payment.

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    so you can be rather sure that you will have this job for the next 40-something years – If you ignore the fact that there almost no permanent positions in academia below the level of professor. – Wrzlprmft Sep 15 '17 at 11:01
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    @DirkLiebhold "So you have to decide between possible high income, but with risks, or lower (but still quite good) income that is rather secure." hochschulverband.de/fileadmin/redaktion/download/pdf/w-portal-d/… here they say that an assistant professor has 3.667,98 Euro per month, after a basic tax calculation, that is around 2200 Euro. I don't know if this is "quite good". Perhaps I just don't have enough perspective... – user3209815 Sep 15 '17 at 11:31
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    @user3209815 2200Eu sounds a bit low for me for an Assistant Professor. Are you sure this is right? But again: people that stay in academia they do not do this for money. – PsySp Sep 15 '17 at 11:56
  • @PsySp: The salary tables in question are for a special class of civil employee in Germany called Beamte. The salary is so low, because it comes with an automatic pension and other benefits. I earned almost as much as the listed salary on a part-time PhD position in Germany (not being in said class). – Wrzlprmft Sep 15 '17 at 12:30
  • @Wrzlprmft Thanks for the explanation. That salary seemed too low for me to be on a "normal" scale. – PsySp Sep 15 '17 at 12:33
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A few thoughts on the disparity between academic and private industry salaries:

  1. In some cases, they aren't: It's hard to get broad level comparisons as many companies are fairly cagey with their salaries and it's not something people often talk about, and there's a difficulty in a 1:1 correspondence between academic positions and industry ones, but I've talked to enough people to be comfortable saying that while industry positions often pay more, this isn't universally true.
  2. Universities aren't a free market: Often, universities have salary guidelines set by the legislature if they're public, different compensation schemes to promote people trying for full professor, other constraints, etc. that mean their salary determination is not just "What the market can bear."
  3. They may not need to: Getting a PhD is already something of an ode to opportunity costs, and there's a fairly heavy selective pressure towards people not necessarily being fully motivated purely by the number on their paycheck. For example, while financial considerations came up in my own job search, they were on the level of "This needs to not be a financial disaster for me to take the job" not "Coming in at a higher salary is what will determine my choice". That means offering more money may not actually yield better recruitment prospects.
  4. Academic freedom: By and large faculty members have a considerable amount of autonomy over their research agendas, and are free to switch those agendas in a way that industry researchers are not. For example, if a drug company abandons working on drugs to treat X, it doesn't matter how interested you are in X, that's not what you're working on anymore. That freedom (which is, admittedly, constrained by things like "Can I get funding for X?") is valuable to people.
  5. Other soft factors: Some people like being professors. I set my own hours, and if I want to not come into the office one day, and work from 10 PM to 5 AM on something, I'm fully free to do so in a way most people in private industry are not. I am, by and large, not directly supervised by anyone. Even when I was a postdoc, and had a direct supervisor, what I did with my day was mostly up to me.

Especially in fields where there is not a lot of movement between academia and industry (for example, in biomedical fields, leaving academia often means its hard to come back), one could view the higher industry salary as what has to be paid in order for people to give up the largely non-monetary "perks" of academia.

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TL;DR: more money does not in general buy better researchers.

Your question is based on the premise "more money buys better researchers than less money". I would like to argue that, aside from the obvious fact that more money costs more money and therefore comes at the expense of other things, the premise itself is simply incorrect (I mean it is not universally correct; there are specific contexts when it is correct however).

The thing is, different kinds of people are motivated by different things. Some people are highly motivated by money and less by a passion for some specific professional calling. You can find a lot of them in finance and other very lucrative industries that are not known for being especially exciting. Other people are highly motivated by the passion for doing something very creative and/or with a high potential for societal impact. Academics tend to be those sorts of people.

Now imagine what would happen if universities suddenly started advertising professor positions that paid $1M a year. What I think would happen is that a lot of money-driven people would suddenly decide that academia is a good place to build their careers, as opposed to, say, finance or tech. Some of those people are quite talented and would be able to build impressive resumes that enable them to get a share of those lucrative jobs, driving out some more passion-driven academics.

However, in the long run academia would suffer. To do really good science, you have to have a great deal of passion - more than some of the money driven types would be able to muster for long term success or for making groundbreaking, world-changing discoveries (as opposed to just for building a good enough resume to land a tenure track job).

My example is a bit exaggerated, but it illustrates a general principle that I firmly believe is true: by offering less money than industry on average, universities not only save money, they actually select for a particular kind of person, who is in fact a better kind of researcher for fulfilling the mission academia is trying to accomplish.

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    "more money does not in general buy better researchers" it does not buy better researchers but it does buy better research -just simply because researchers wouldn't have to apply for new positions every 6 months, work with limited laboratory tools, give up on visiting conference and interrupt their research whenever no (or not enough) money is offered by university. We all agree that you don't do research for the money but practically speaking money does allow you to perform good research without worrying every 3 months. – gented Sep 15 '17 at 21:11
  • @GennaroTedesco "work with limited laboratory tools, give up on visiting conference and interrupt their research whenever no (or not enough) money is offered by university." - You seem to be suggesting that higher paid industry scientists are using their higher salaries to support their research. I very much doubt this is true. Additionally, higher salary costs would eat into grant budgets and startup funds, and actually reduce the resources available for actual research. – Fomite Sep 15 '17 at 21:49
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    @GennaroTedesco Additionally, your "not having to worry every 3 months" is an argument against short term positions, not academic vs. private positions. I know plenty of consultants who are in a constant state of searching for jobs (either internally with projects as funding comes and goes or with different firms). – Fomite Sep 15 '17 at 21:50
  • @Fomite I am not suggesting that people in industry use their salaries to support their research, I am stating that lack of money in the university does affect research as it cuts down the stability of the people who are involved in it. Moreover, you might be surprised but startups funds are in general way more than what university allowances are in the course of, say, 2-3 years (standard post-doc position duration). About my assumption on the short terms position, you're right, I am assuming that academic position are short (after all, are they not?). – gented Sep 15 '17 at 21:56
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    @GennaroTedesco Because if one is making statements about "industry" as a whole, one of many jobs in industry is still relevant, especially given its where a great many people in my field would end up if they went private. I'll note I haven't assumed the U.S. is everywhere - you're the one whose spoken in universality. I've simply asserted "That's not necessarily true..." – Fomite Sep 15 '17 at 22:13
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Do not think that salaries in academia are low or fixed. Getting a good salary in academia is definitely more difficult and takes a lot longer than in industry. Basically anyone below a professor is not paid what he/she is worth. But then, the dynamics work quite a bit differently. As others have pointed out the number of people applying for academic positions is much higher than the number of positions. Especially at prestigious institutions. Once you reach a professor position, your salary depends highly on which country you are in. The span for tenured position salaries in Europe ranges from about 30k€ per year to 500k€. Though the latter is only possible if you are at the level of a Nobel laureate.

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