Sunday, June 02, 2019

Entry Level Pay

This weekend Will Simpkins, from Metropolitan State University - Denver, posted a great question on Twitter:

Been thinking about salary lately - and how (particularly underfunded) institutions can raise the bar for entry level pay. Without new $, seems like only choice is not filling vacancies and apportioning that money…which just leads to overwhelmed staff. Any other ideas out there?

To which I say, it’s complicated.

I’ll start with some context.  I’m writing from a community college with tenure and unions, in a state that hasn’t increased its aid since the Clinton administration.  Private institutions with enrollment increases have options that we don’t have.

Low entry-level salaries make recruitment harder.  That’s especially true in fields where people have options within industry, such as computer science or Nursing.  The local hospitals don’t care about our internal salary scales; they pay what they need to pay to get staff. If that means we have trouble competing, then that’s what it means.  When salaries are collectively bargained, any deviation from the standard salary schedule becomes dangerous.

So, one might reasonably ask, why not direct what resources you do have to entry-level salaries?

The first and most basic issue with raising entry-level pay is salary compression.  If newbies make more than people who have been here for a few years, the latter group can be expected -- reasonably -- to ask for a compensatory bump.  Which, in turn, creates pressure for a bump for the group above them. In essence, raising entry-level pay requires raising pay all the way up the scale.  What looks at first like a relatively small amount (“what’s a few thousand dollars out of a budget of 81 million?”) into a much larger one, and one that compounds over time.

In the last faculty collective bargaining agreement, we agreed to take the pool for raises and distribute it as a dollar figure, rather than a percentage.  That way, the folks on the bottom got bigger increases than they otherwise would have, and the folks on the top got smaller ones to compensate. It didn’t create any compression issues, since the entire union went up by the same amount.  It was like a flat tax in reverse. (In essence, instead of everybody getting 2%, the folks on the top took 1% so the folks on the bottom could get 3%.) Given that health insurance premiums don’t vary by salary, it seemed only fair to direct more help to the lower end.  I was glad that we did that, and I’m hopeful that we’ll be able to do it again. The folks on the top of the scale are doing fine, but the ones on the bottom have a legitimate beef; dollar-figure raises offered a politically acceptable way to do something about that.

Still, that’s just a different distribution method.  It doesn’t solve the problem of the pool of money being too shallow.

Sometimes it’s possible to get by with fewer people, and to use some of the savings to address salaries.  But at this point, most of the low-hanging fruit has been picked. Besides, there are limits to what you can ask the remaining people to do, and to do well.  Technology occasionally helps, but it brings costs of its own, and some tasks still require human beings. (See the Baumol’s Cost Disease post from last week for details.)

Grantsmanship can help fill in gaps, in some cases, but it has limits.  Grant funding for positions tends to be temporary, although it often comes with “sustainability” or “matching” requirements that commit the institution to using its own dollars beyond the grant.  That limits the usefulness of grants, and tends to favor institutions that don’t need them as much. (Despite having by far the best arguments for philanthropy, community colleges are badly underrepresented in the higher ed philanthropy world.)  

Public/Private Partnerships (“P3”) are fashionable now, and sometimes they can help.  But remember Coase’s theory of the firm. Firms exist to reduce transaction costs. As you go outside a single firm, the transaction costs increase dramatically.  Direct funding is far more efficient, but it’s out of fashion politically.

Traditional private philanthropy is valuable, but folks on campus often misunderstand how.  You don’t want to pay ongoing salaries with soft money. Well-endowed private institutions can make such high returns on endowments that they can fund operations out of those returns, but we can’t.  Instead, philanthropic dollars tend to go to scholarships, buildings, or programs. All of those are useful and valuable, but none of them funds regular salary lines. For those, we need operating dollars.

Honestly, the two most powerful moves we could make to fund salaries at a more realistic level both exist beyond the campus level.  The first is increased operating funding from states and/or localities. The longer we let that leg of the stool decay, the more tilted we’ll be.  The other is some sort of major structural change to health care. The rate of cost increase for health insurance is catastrophic, and it’s squeezing out everything else.  Single-payer health care would be an excellent boost to higher education funding. People don’t usually connect those dots, but they’re connected. As long as we’re paying twice-inflation increases for health insurance on zero-increase subsidies, we’ll be squeezed.

The bottom line is that it’s hard to pay more money when you don’t have it.  There’s no non-political solution to that.