In tough economic times, professors face salary freeze

| Staff Reporter

Despite the slow improvement in the economy, professors at Washington University are feeling the crunch of a decreased endowment. Although the endowment increased by roughly 13 percent from July 1 to the end of November, the administration voted to reduce spending by 4 percent. This decrease in spending will result in the freezing of professors’ salary raises.

“The University has a very unusual cost structure,” business school economics professor Glenn MacDonald said. “Most money goes to faculty and facilities, neither of which is very easy to adjust. When we get a drop in the endowment, that draw drops proportionally.”

MacDonald showed surprise that the University is freezing salary raises, because in the past, the administration has generally not let the stock market affect professors’ salaries. When the economy and the endowment were doing well, he said, the faculty did not receive the benefits of the economic upturn.

“If we were a beer company, feeling the upside and downside of the economy would be normal, but in an academic setting, it’s not,” MacDonald said. “Faculty are paid largely in benefits­—we have a lot of flexibility [and] good job security, and we get raises, so when the University takes away one of those things, we get angry.”

While workers in regular businesses take pay cuts when the economy is down but gain benefits or higher raises when the economy is up, professors do not receive the big gains when the economy is doing well. The tradeoff for not receiving such benefits when the economy is doing well is not being hit as hard when the economy is doing poorly. MacDonald, as well as other professors, did not expect to have their raises frozen as a result of the bad economy, because they did not receive the benefits when the economy was doing better earlier in the decade.

“It’s a very unusual thing to do,” MacDonald said. “It happens more in state schools, where the school is more dependent on the state economy.”

Professors hold the opinion that the University should restructure its budget in response to the current economic situation.

“I think this would be a good time for the University to cut down on unnecessary and luxury expenses and restructure its budget,” said Michele Boldrin, chair of the economics department.

Boldrin noted the importance of prioritizing what the endowment should pay for and what other revenue should cover.

“It is important for the University to learn that the endowment should be used for investment and extraordinary expenses,” Boldrin said. “It is more like a buffer that you want to use to undertake risky investments and cover dramatic situations like this one.”

MacDonald noted the difficulty in reducing budget expenditures.

“In the short run, the University would like to save some money, but it just makes people angry,” MacDonald said. “They’ll end up having to give raises in the future to keep the faculty.”

Boldrin encouraged making the budget debate public. Because faculty salaries are such a delicate issue, he believes that it would be helpful to focus the debate on where the University is making cuts.

“The University is a heterogeneous community with different interests and values that have to be made compatible,” Boldrin said. “Where to spend the money is often the most difficult thing because things that I may consider important, others may consider irrelevant.”

Despite the freezing of faculty raises, the University has done better economically than other universities, in part because of its status as a private university and because of generous donations.

“Public universities have suffered more because they rely heavily on state tax revenues, which have dropped dramatically over past years,” Boldrin said. “We have had some suffering, but I would say that we have not done that badly.”

Although the University has done better than other universities, and despite the recent increase in the endowment, Boldrin does not expect a rapid improvement in the University’s financial situation.

“Improvement is going to be slow,” Boldrin said. “The University will have to plan strategically for an environment with less wealth and will need to be more efficient in use of resources. We will not quickly go back to the abundant cash flow we had three years ago.”

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    For more info about the role of the endowment (or more specifically, income from the endowment) in the university’s revenue sources, see the chancellor’s “State of the University” speech from last April: http://www.wustl.edu/wrighton/sotu4-23-09.html. The explanation of the revenue sources comes at about 12 minutes into the talk.