Critical linkages in higher education: Age composition and labor costs

A major labor market issue emerging in the last decade has been the sensitivity of the economy to changes in the composition of the U.S. population. The literature on this issue has focused on the aggregate effects of recent changes in population composition (specifically, the relative size of the ‘baby boom’ and subsequent ‘baby bust’ generations, on work opportunities, relative wage rates, expected wage profiles, educational choices, and industrial composition). The magnitude of the macro-economic effects of population change is in dispute. Some researchers attribute a large part of recent economic fluctuations to population change (Easterlin, 1980) while others dispute this contention (Russell, 1982). There has been. little research on the effect of changes in population structure on particular sectors of the economy in which the intersection between the size and structure of different populations may be more evident and direct. Our intention is to trace the linkage among age composition changes, employment opportunities, and compensation costs in higher education. We use college and university faculty members and students to ilhrstrate this important interaction for several reasons. First, the dependence of faculty job opportunities on the size of the potential student population is obvious, even if the magnitude of this relationship is unclear. Second, dramatic changes in the rate of growth of demand for higher education over the past several decades have had accelerated effects on the demand for new faculty members. As a result, the age composition of faculty members has changed dramatically over time and will determine the ability of this sector to restructure employment in response to future changes in demand. Third, recent public policy initiatives have in some instances compounded the labor force effects of underlying demography change; as one example, the 1978 amendments to the Age Discrimination in Employment Act changed the minimum age of mandatory retirement from 65 to 70, thereby limiting at least one option available to institutions of higher education for adapting to changes in demand for their services (Jenny, Heim, and Hughes, 1979). ’ Finally, because of the long existence of faculty retirement plans and the recent introduction of various early retirement incentive programs designed to accelerate retirements, an analysis of this sector nicely illustrates the effect of age composition changes on retirement behavior and on employee costs. Some sense of how faculty demography has changed and is likely to change comes from a major study of the academic labor market by Cartter (1976). We observe that the median age of faculty members fell from 43 in 1962-63 to 40 in 1968-69, rose to 43 in 1972-73, and then held about constant until 1977 (updated by authors). How the distribution will change in the future depends both on the availability of new PhDs but more importantly on the rate of voluntary and involuntary departures by current faculty members. Several employment practices in the market for faculty members distinguish this sector and should be mentioned. The Association of University Professor (AAUP) and the Association of American Colleges (AAC) agreed many years ago that the appropriate age for faculty members to retire should be between ages 60 and 70; provision should exist for earlier retirement for those who might wish or need to retire; only in special circumstances, such as for short-term appointments, could