Is Tenure Overrated Or Are the Alternatives Really That Bad?

Josh Wright —  7 March 2007

Steve Levitt thinks that tenure is overrated. But relative to what? Levitt proposes doing away with tenure because it distorts the incentives of scholars to front load their productivity and then ride off into the sunset after tenure is granted. Surely he is right about this incentive effect. Levitt also makes quick work of the frequently raised defense that tenure is necessary to protect those doing politically unpopular work and adds that:

If the U of C told me that they were going to revoke my tenure, but add $15,000 to my salary, I would be happy to take that trade. I’m sure many others would as well. By dumping one unproductive, previously tenured faculty member, the University could compensate ten others with the savings.

It must not be that simple because few schools have tried, and my sense is that those that took a stab at it capitulated quickly and reinstated tenure. What am I missing?

Levitt’s post provoked a response from Greg Mankiw suggesting that the piece Levitt is missing is faith in markets:

My guess is that a more typical faculty member would place a larger monetary value on having tenure. If so, universities may well be better off by paying lower salaries to tenured faculty, despite the adverse incentive effects, than paying higher salaries to professors without tenure. In other words, Steve thinks the competitive market for professors is resulting in inefficient contracts, while I believe that, absent any reason for market failure, the labor contracts we observe are likely to be efficient. (We Harvard profs always have to remind those Chicago guys that competitive markets work pretty well.)

The last paranthetical line is pretty funny. But it is true that there is some tension in Levitt’s claim that we should believe in competitive labor markets to protect those fired for political reasons but not to produce efficient labor contracts in the first instance. Perhaps he has something in mind to reconcile these claims, but color me skeptical for the moment. While I don’t pretend to know the precise form of the optimal labor market contract in higher education, markets have a remarkable history of producing efficient contractual forms and institutions that economize on these complex and dynamic costs. The persistence of these contractual forms is probably a fairly good sign that it is efficient.

However, the enormous complexity of the tradeoffs involved in altering the dynamic incentives of scholars within a department would appear to cut both ways. And probably across institutions as well. For example, a second tier school whose hiring strategy involves a greater reliance on “gambling” on young scholars and weeding out those that underperform at the tenure stage might face vastly different incentives than a top 10 law school facing very different constraints. One can also imagine other dimensions on which the tenure considerations and optimal “lifecycle” productivity incentives for scholars might vary across departments and universities. With all this variation between and within universities why the near universal adoption of tenure despite the obvious incentive costs that Levitt identifies?

Perhaps the attacks on the tenure are a good example of the nirvana fallacy. The tenure system is not perfect. But while it distorts incentives, perhaps these effects are dominated by the costs of the alternative governance institutions and contractual forms? But are these alternative forms really that bad?

The most likely alternative candidates are delegation of more power to the Dean or other senior faculty members. Mankiw describes some of the problems with the former and Dan Solove over at Coop explores some issues with the “firing by faculty” model. But the inefficiences cannot just be a few bad decisions made for political reasons. As Levitt suggests, the market will protect those productive professors who are fired for political reasons. There are examples abound that suggest he is right. But maybe something larger is at stake. Perhaps the increased divisiveness and resources devoted to these sorts of decisions by the faculty at reduces productivity. But are those effects so large as to swamp the beneficial incentive effects of doing away with the tenure system? It is hard for me to believe this. Mostly because GMU is a place that is very conducive to and rewarding of productivity. It is tough for me to imagine a set of political issues that would actually reduce my own productivity (lots of other things: blogging, March Madness, poker … but not faculty politics). But I’ve also only been a faculty member for a few years and perhaps I am too green to understand how ugly things can get in other places.

All of this leads me to more questions than answers. Does the tenure model really reduce faculty divisiveness relative to alternatives? Does this argument imply that faculty collegiality (or at least, lack of divisiveness) really has productivity effects? Should untenured faculty members blog about tenure and effects on productivity instead of writing? Is my Dean reading this? Gotta go.

11 responses to Is Tenure Overrated Or Are the Alternatives Really That Bad?

    Keith Sharfman 10 March 2007 at 7:05 pm

    Kate–I don’t see what government subsidies have to do with tenure. Are there any examples of such subsidies being made contingent upon a university’s tenure policies? I’m not aware of any.

    Lifetime contracts are quite common in many industries, not just academia. Professional athletes often sign lifetime contracts, as do clergy members. Do you think it’s inefficient that the common law enforces these agreements? What about “golden parachutes” for executives that makes terminating them even more costly than breach of a lifetime contract? Was Eisner’s contract with Disney inefficient when made?

    The problem of how to motivate employees exists with or without lifetime contracts. It is a mistake to think that shirking exists only among the tenured ranks. The problem is much broader than that.


    Thanks Kate.

    I might be coming around from the thinking behind my original post — which I think may simply be a defense of the “second best” proposition conditional upon the subsidies and the like you mention.

    But I haven’t come around completely … I dont think. It is certainly right that the lack of private property rights and the government subsidies accruing to the universities supports the tenure contract. But if I might offer what I think is a friendly amendment: The inefficiencies under this story result from the presence of competition, not the lack of it. In other words, I still dissent from the assertion that this is not a “market outcome” if that term is meant to denote the presence of competition rather than the absence of subsidies. But that may just be a matter of semantics here.

    So, I agree with the proposition that the government subsidies and lack of private property rights meddle with the inefficiencies of labor contracts. I also agree that competition is sufficient to protect academics who take “unpopular” views or what have you (does anybody really believe this justification for tenure?).

    I guess that leaves us with the question of whether the tenure system is second best (or maybe third?). I’m still left with the question of why tenure has persisted at for profit institutions, but there are credible collective action based answers to this question that might make sense. But, the far more interesting question is whether we should abolish the legal and tax advantages granted to nonprofit institutions?!

    Michael Guttentag 9 March 2007 at 8:49 pm

    I can’t pass up the opportunity to side with Kate on this one. Based on my brief experience in academia, I would agree that it is not the paragon of a well-managed business.


    Academic tenure is most empathically not a “market outcome” – at least, it’s not an outcome of a competitive market. Tenure, along with a host of other oddities and inefficiencies, is a product of decades and decades of government funding of, and corresponding intervention into, both scientific research and higher education. Recall the presence of state universities, government financial aid, government funding of research, tax breaks to both universities and foundations that give out grants, etc etc etc. Universities are largely (not fully, but largely) shielded from true competition with the private sector, so they can afford to keep rudiments of the old guild system like tenure and collective decisionmaking. There are lots and lots and lots of other industries where performance evaluation is hard and the threat of managerial misbehavior is real (e.g., law, accounting, financial services, medicine and other health care, publishing, entertainment, much of engineering and high-tech, and so on), but none of those fields is as affected by the government as the academy, and none of them developed the cartel of tenure.

    The real question is whether, given the existing system, tenure is the second best. I have my reasons to doubt. Keeping a huge ballast of unproductive people (at best disengaged, at worst actively harmful to research) is too high of a price to pay for whatever niceties that employment protection creates.


    Kate, to echo Keith’s comment a bit, I’m not sure what this has to do with “at will” employment as such.

    Without speaking for any of the others, my support for free-trade and free market competition derives from the belief that private actors can reach contractual solutions that best economize on the relevant costs and benefits they face (e.g. the bad incentive effects of the tenure system relative to at-will that you mention). So while I laugh at attempts by the government, for example, to replace the judgments made by the parties but not at privately reached contractual agreements between parties electing for long term contracts or other commitment devices.

    I don’t think this position is particularly creative. Rather mundane really: The freedom to contract extends to contractual form, duration, specifying damages, etc. And if I can turn the question around, if tenure is such an inefficient institution, why do we observe in uniformly across universities and departments? What am I missing?

    The case against the efficiency tenure I am more willing to accept at this point is Thom’s point that the ABA forces its adoption — though I dont know if similar requirements are imposed for other institutions.

    Keith Sharfman 8 March 2007 at 5:05 pm

    Kate–the current state of affairs that you deride *is* a market outcome. Levitt is criticizing the market; we aren’t. The creativity here is simply to provide an *explanation* for why the market is behaving as it is.

    Academics work today in many different types of arrangements, both tenured and non-tenured. As long as some universities and some academics continue to find tenure a mutually beneficial arrangement, there is litte basis for questioning this freely-made choice on efficiency grounds.


    I hate to say it on this blog, but: You guys are providing more evidence that people are extraordinarily creative when they need to justify protectionism that benefits them. Notice that pretty much all of your arguments in favor of academic tenure (evaluation problems, danger of managerial misbehavior, the need to pay more to compensate for risk, disincentives for mentorship, perverse incentives to crash internal competition, etc etc) have been made with respect to employment protection outside the academy – and we happily laugh at those. Yes, at-will employment has downsides. But it also has very strong upsides, remember? Like, the pressure to work hard.

    Mankiw’s support of tenure is particularly striking given his very public call to welcome international competition for academic positions. A few months ago, he responded to the protectionist crowd by announcing on his blog that he puts his money where his mouth is and is therefore willing to compete with foreign academics – just like US engineers who have to compete with Indian and Russian engineers. But he is not willing to give up his tenure! What kind of competition is that? It’s like having a federal judge announce that he is willing to freely compete with foreign lawyers. Give up your tenure, and we’ll talk.

    Guys, seriously, I don’t understand how you can keep a straight face supporting free trade and free markets and supporting academic tenure at the same time.

    Keith Sharfman 8 March 2007 at 6:58 am

    Fine post, Josh. I’m inclined to side with you and Mankiw and against Levitt in this debate.

    One other consideration worth noting is Posner’s very interesting argument in favor of tenure: it enables senior faculty to hire the best junior faculty possible (and be generous to them once on the job) without fear that the juniors will displace them. In a world without tenure, senior faculty (especially less productive senior faculty) would have incentives to hire weaker junior faculty or resort more to adjuncts, for fear that strong junior faculty could pose a competitive threat.

    market failure, right here 7 March 2007 at 3:09 pm

    Speaking of occupational instability, here’s a great piece on how the deregulatory fetishes of the Reagan administration undermined the institution of marriage.

    Maybe it’s time for a real “defense of marriage” act — universal healthcare and a basic social safety net!



    I really enjoyed your post (and Levitt’s…and Anonymous’s impassioned comment).

    It is indeed curious that we don’t see more experimentation on tenure. Markets usually accommodate heterogenous preferences w/r/t contract terms, and I, for one, would side with Levitt — I’d take more $ over security in a heartbeat.

    So why no (or very little) diversity on tenure? One possibility is, as you say, that the standard contract is efficient. (“[M]arkets have a remarkable history of producing efficient contractual forms and institutions that economize on these complex and dynamic costs. The persistence of these contractual forms is probably a fairly good sign that it is efficient.”)

    Another possibility is that there’s a defect in competition. It may be that collusion prevents universities from responding to market forces. For example, five minutes of Google research revealed that law schools MUST adopt tenure policies in order to be accredited. See here (Standard 405(b)) and here. I’ll bet most college accreditation boards impose similar requirements.

    This reminds me a bit of the old the Henningsen case, in which we see that standardized contract terms may not be efficient if there’s a defect in the competitive process.


    As a non-tenured professor at a major university, I can offer a different perspective on a couple of the points made by Josh.

    First, I know that the university will keep me only as long as my courses are in demand and the students respond well to my lectures. I’m perfectly comfortable with this deal, and would not care to be kept on under circumstances to the contrary. It keeps me on my toes, and the student response in my classes reflects that.

    Second, I am probably politically to the right of nearly all of my fellow professors. I don’t feel threatened by that because my colleagues don’t appear threatened by it. In fact, they seem to welcome the difference. They like the intellectual tension it creates because they believe our differences are the product of good scholarship and varying experiences. We respect each other.

    So, why am I posting this anonymously instead of under my usual moniker? Because our adjunct faculty, even full-time, was recently unionized, and it’s hard for me to comment on that without resorting to the kind of blue language that my wife thinks comes out only at tax time. Apparently, certain adjuncts did not feel comfortable with the “at-will” deal or how it allowed our university to “exploit” us. It’s a closed shop. So when I resisted joining, they said it was for my own protection, and I didn’t have a choice. Very mafia-like. No, I don’t feel my kneecaps are threatened, but they do have that level of control over a job I love.

    Personally, I feel less secure after the unionization. I feel that the university will become more driven by administrative concerns than with things like how useful or popular a particular teacher might be. I feel that the union has reduced the value of all adjuncts to the school while increasing their costs, which in the long run can’t be a good thing. The school will be less likely to hire new teachers, or keep them after some prescribed period of time after which they become too difficult to fire. I also don’t like the idea of giving a dime of my earnings to an organization I…don’t really like that much. Better stop now.