US University Science: The Shopping Mall Model

Posted on March 23, 2014 by Lambert Strether

Lambert here: The comparison is hardly fair to shopping malls. Many retail positions pay just as well or better than adjunct professorships.

By Paula Stephan, Professor of Economics at the Andrew Young School of Policy Studies, Georgia State University; Research Associate, NBER. Originally published at VoxEU.

Universities have relied heavily on federal funds for research for many years. Yet, since 2005, federal funds have been flat in real terms, with the exception of funds received through the American Recovery and Reinvestment Act (ARRA). More importantly, the hope for a substantial increase in federal funds is dim. At the same time, public research institutions such as the University of California Berkeley, the University of Michigan, and the University of Wisconsin, face the added challenge that funds from state governments for higher education have been flat or have declined in recent years and are likely to remain low.

The economic rationale for governments to invest in university research was laid out more than 60 years ago by Kenneth Arrow (1962) and Richard Nelson (1959). It rests on the understanding that knowledge has properties of what economists call a public good in the sense that once research findings are made public it is difficult to exclude others from their use, and that research findings are not depleted when shared. Economists have gone to considerable lengths to show that, if left to the private sector, society would underinvest in public goods. An additional rationale is that research, especially basic research, is inherently risky and society has a tendency to underinvest in risky research without government support (Arrow 1962). Last but not least is the role that research plays in economic growth(Romer 1990).