The rationale behind academic and industry salary difference

Question

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?

Answer 1

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!

Answer 2

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.

Answer 3

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.

Answer 4

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.

Answer 5

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.