To B or not to B

"To B or not to B: that is the question." Even by the loosest standard, I am not Shakespeare-literate. The quote is related to an article in today's Wall Street Journal. The article said that there is an estimated shortage of 1,000 Ph.D.s in business schools all over the U.S. Business schools are having a hard time finding Ph.D.s to teach in MBA programs.

By a simple supply-demand analysis, we can safely say that salaries for assistant professors in business school must be driven higher because of the shortage. The article confirmed that the starting salary is around $108,000, a huge increase since 2000. In 2000, the starting salary is roughly $77,000, a number most economics Ph.D. are still hoping to get today.

The shortage, in my opinion, is caused by generous offers from Wall Street bankers. Imagine if you are an econ major in college and you are looking at offers you will probably get after graduate schools, will you go to a finance Ph.D. program or a business school? Starting salaries might be similar for an i-banker and an assistant professor, but Ph.D.s have to suffer 2~3 years more than MBAs. Besides, the growth prospect in professors' compensation is pretty dire. Taking opportunity costs into consideration, it is really not that difficult a decision to make. Ever-popular MBA degrees are also constantly increasing the demand for business school professors. Given that demand curve shifts upward while supply curve stays at the same level, it is not difficult to reach the conclusion of higher salaries for business school professors.

The question then is to ask why the salary gap between professors in economics department and their counterparts in business school persists. After all, training finance Ph.D.s is also done in economics departments. Why don't we see more economics Ph.D. migrating to business school and consequently mitigate the pay difference?

My guess is that business school professors have more responsibilities teaching MBA classes, which are gradually shifted to a composition of more seasoned executives than 20-something youngsters. It is relatively challenging for freshly minted Ph.D. to command such a task. Therefore, economics departments are and will still be the most popular destinations for econ Ph.D.s.

I've never thought that being old is of any advantage in the Ph.D. program. Now I find a comparative advantage for myself in the job market. "To B or not to B" is no longer the question for me.

(Picture: Paul Merage School of Business, UC Irvine)