New research shows that universities can use their market power to keep wages artificially low. Alfonso Flores-Lagunes of the Upjohn Institute and Zhanhan Yu of the University of Glasgow find that a public university system pays faculty 7 percent below what they would earn in a competitive market.
Flores-Lagunes presents the research Saturday, Jan. 4 during the Allied Social Sciences Association annual meeting in San Francisco. See our full conference coverage.
The concept of monopsony refers to a labor market dominated by a single employer, just as monopoly describes a market for goods dominated by a single seller. A monopsonistic employer can set wages below what it would have to pay if there were more competition.
Employers can have some level of monopsony power even in a market with multiple employers, if the pool of outside job options is small or workers have significant barriers to leaving for other jobs. Yu and Flores-Lagunes find monopsony exists in campuses of the universities of the University of California system.
Much other research on monopsony focuses on the low-wage labor market, examining, say, the effect a Walmart supercenter on a small town’s wages. Yu and Flores-Lagunes look instead at high-wage jobs: tenure-track professors in the UC system’s powerhouse Research 1 universities.
Comparing salary data with faculty characteristics, experience and productivity measures such as publications, they find the professors are paid 7 percent below the value they bring the universities. Female professors experience nearly 20 percent higher levels of this monopsony effect than do male professors.
As expected, universities’ monopsony power has more effect on professors in fields that offer fewer job options outside academia, such as art and history, than those, such as science and business, with many options. In these fields with many options, however, monopsony power affects women more than men, suggesting that female professors are less willing or able to leave for new jobs.
The UC system also has a gender pay gap: Male faculty members earn, on average, $1,163 for every $1,000 female faculty members earn. Male and female professors’ different experience of monopsony power explains a relatively small portion, around 8 percent, of the gender pay gap, the researchers find.
The research uses data on faculty wages and separations from 2010 to 2018. The UC system makes data on wages publicly available and uses open salary scales as a guide to determine faculty compensation. This openness of information makes universities less able to exercise monopsony power, the researchers write; other universities and systems may use information imbalances to exert more power.
Flores-Lagunes presents "Monopsony in Academia and the Gender Pay Gap: Evidence from California" at 10:15 a.m. Saturday, Jan. 5 at the 2025 ASSA annual meeting.
See a full listing of Upjohn staff participation at the conference. Follow the #ASSA or EconConf feeds on Bluesky.
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