The Supply (In)elasticity of Graduate Labor

Perhaps an imposing title for some readers, but bear with me - it seems like it's been blaring in my face from all directions lately.

The research I presented with Hal Salzman at NBER the other week was a broad overview chapter on trends in the supply of engineers. The work has been veering towards a very specific labor supply problem, namely the inelasticity of labor supply. For non-economist readers, that means that the supply of engineers is not responsive to price changes in the way that we usually think goods and services are. Think of a supply and demand model where the supply curve is vertical. The result is that when demand for engineers increases, their wages increase but you don't get many more engineers. One of the reasons for this, of course, is that it takes time to train an engineer (so supply doesn't adjust over night) and guys like me can't just jump into the field to take advantage of the higher wages. But some, like Romer (2001), have suggested that the problem goes much deeper than an adjustment lag, and that graduate institutions aren't set up to be responsive to market signals. Our chapter has been steadily veering towards this research question: how do engineering programs respond to market demand? Yesterday Hal also passed on this article on the responsiveness of programs, which reports on this paper presented at the AEA meeting in January. It's not just a problem with the engineers, though.

Theology and the Humanities
Evan has a great post up on graduate programs in theology, where he critiques a review of these schools by R.R. Reno. Many issues come up in Evan's discussion (in fact most of it is on the dominance and relevance of "schools of thought" in theology departments, which is very interesting), but one of them is simply that students are often taking stabs in the dark when they apply to these schools. Economics graduate schools have a complex ranking and tier system that is fairly transparent and broadly embraced, but my impression is that theology departments (and many other disciplines) really don't have this. Reno, to be fair, makes an attempt to remedy this by reviewing the major departments, and Evan does his part by responding to Reno. I'm guessing neither of them see schools strictly as a labor supply institution, but from a labor market perspective the opacity is troubling. Some of this is a problem with the institution itself, and some of it is an information asymmetry problem plaguing applicants. This video has been making the rounds, and illustrates perfectly this problem of information asymmetry (or, as the kiddies call it, "optimism").

I've heard these issues from the humanities for a long time from Evan. It sounds rough. Unlike economics or engineering, there isn't a robust private market for graduate-level humanities students. We could say that the cultural maintenance work that humanities scholars do is a massive positive externality.

UPDATE: A theology student friend of Evan's links to a cartoon that gets at the heart of the issue and asks "Could God make a degree so useless that even he couldn't get a real job with it?"

Law
Another article that has been making the rounds on precisely this problem is this Slate piece suggesting that too many lawyers are supplied. The demand for lawyers has fallen dramatically, but supply is not being as responsive. Kling talks about the article here and Andrew Sullivan talks about it here. I imagine this is more of an adjustment lag than a long-run issue. Law school takes less time and is very expensive (for the student) relative to PhDs that are often covered by financial aid or grants. In addition, law students are intimately connected to the labor market through their summer internships.

Economics and the Social Sciences
And then, of course, there's the labor supply process that I'm currently trying to jump into. As I said above, I think economics is uniquely transparent in its rankings and in how explicit it is about what it takes to get in and what you can do with the degree when you leave. A lot of the reason for this is that while a large share of economics PhDs (I've heard half I think - is that right?) go into academia, it's not a purely academic degree in the way that humanities degree can be. I think the same issue with managing expectations during the application process applies, though. Anyone that's applied to an economics program knows that there are two kinds of advice you get from people: (1.) the encouraging, excited advice, and (2.) the tough-love advice that all but tells you it's not worth it if you don't go to a top tier school. I recently got the second version from a colleague at work. It's well intentioned and I'm glad people get this advice, but not exactly the kind that I needed at the time that I received it. You all know what schools I'm applying to - I think it's a nice range, with some very well ranked programs in the mix. I think all of them are OK for a non-academic job in the D.C. area, which seems like the most likely course for me (although I'm warming up to academia). But this raises exactly the same issue of supply elasticity. Even given the transparency of a lot of the economics PhD application experience, a lot of applicants still need to be told that for an academic position you're in trouble without a top-tier school.

A user-generated video about political science similar to the one above presents another asymmetry that manifests itself as a supply inelasticity - namely, that social scientists are incentivized to do research that isn't useful for the real world. George Mason professors make this case a lot, although others would argue that their department suffers from exactly the same problem:

Does anybody else have interesting anecodes/links/information on the elasticity of graduate labor supply? At this point I have a personal, bibliographical (my chapter), and scholarly interest in the issue and would love to hear thoughts.

- Romer, Paul. 2001. "Should the Government Subsidize Supply or Demand in the Market for Engineers?" Innovation Policy and the Economy, vol. 1.