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The Market for Economics and Finance PhDs

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Kenneth Clements discusses new information about the post-graduation activities of those with a PhD in economics and finance from an Australian university.

Image courtesy of interviewee. December 18, 2023

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This video video discusses the significance and impact of PhDs in economics and finance, highlighting their role as premier degrees at universities and the substantial resources universities allocate to them. It notes that PhD graduates often secure jobs in key sectors, including treasury departments, central banks, consulting firms, and academia, contributing to public policy, business decisions, and economic literacy, which is vital for a functioning democracy.

The document reviews existing literature primarily focused on the U.S. job market for PhD graduates, noting a recent comprehensive study revealing a substantial shift towards non-academic positions, now accounting for nearly half of placements. It introduces Australia's context, presenting three data sets to assess the job market outcomes for local PhDs, revealing an increase in annual production of economics and finance PhDs, along with their demographic makeup.

The second data set consists of insights from an annual PhD conference, tracking the careers of attendees. Approximately 40% of tracked individuals became academics, mirroring broader national trends. The third dataset, the Graduate Outcome Survey, provides earnings data, indicating higher wages for graduates from prestigious universities while also revealing a gender pay gap.

This video video identifies challenges faced by PhD students, including opportunity costs, thesis writing difficulties, and competition with U.S.-trained counterparts. It concludes with reflections on promising prospects for Australian PhD graduates, emphasizing the importance of adaptability in an evolving job market, and providing insights into the timeline for academic impact, with significant contributions often occurring 11 years post-PhD completion. The overall landscape appears positive, with international opportunities for graduates from Australian universities.

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00:00.555 --> 00:02.525
PhDs in a certain fundamental sense are the,

00:02.545 --> 00:06.165
are the premier degrees offered by many universities?

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They devote substantial resources to them,

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mostly in the form of the, of the time

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of the senior staff that supervise the students.

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And of course, the students that are attracted to PhDs, some

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of the brightest young people in the country.

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And they go on to work for treasury departments,

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central banks around the world.

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So they guide the future of economic policy.

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They guide the future of the economy.

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Those students are going to the private sector.

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Uh, they get jobs with consulting firms

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and finance companies.

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Uh, but about half of them, half of these students

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become academics.

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So you say that the PhD students in later life,

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they contribute to public policy.

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They contribute to business decisions, education

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and economic literacy, which is so important

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for the smooth functioning of a democracy.

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So the reputation

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of universities rest heavily on the quality

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of their PhD graduates.

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So our research, it's designed to measure the quality

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of those graduates by looking at the job outcomes,

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how they go in the labor market.

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Uh, so this will provide information for prospective

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and current PhD students,

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what they might do after they finish.

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And also it provides, input to university planning for

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what type of courses they should offer in the future.

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There is a substantial literature on the market

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for economics and finance, PhDs that's mostly

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US based.

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And mostly that literature focuses on the academic market.

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But more recently, there's been a very nice

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and very comprehensive study of both the academic

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and non-academic parts of the US market by Foster

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and Cove, which was published in,

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a recent issue of the Journal of Economic Perspectives.

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So fo Foster

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and co find

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that non-academic placements are growing in importance

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for economics and finance PhDs.

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They, they now account for nearly 50%.

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And these people go and work for tech companies.

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Amazon, for example,

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has 400 economists now working for them.

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Uh, they go to work for consulting firms

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and they go to work for the public sector.

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Of course, fostering co also find

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that there's much more career mobility between the academic

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and non-academic sectors than was previously

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thought. So if you initially

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Take a job, take a non-academic job,

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you're not frozen out

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of an academic job sometime in the future, foster

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and co put it, that the door swings both ways.

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Uh, now that's the US literature.

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There's, a bunch more limited

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literature on labor market outcomes for Australian

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PhDs in economics and finance.

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And that's what we deal with.

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We've got three data sets actually that looks at this.

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The first dataset is from the Commonwealth Department of,

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education.

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And, according to those data over the last 20 years,

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the annual production of economics

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and finance PhDs has approximately doubled

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in, in Australia.

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And it's recently peaked at about 150

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graduates per Ann.

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40% of those are females,

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and about half of them are international students.

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Uh, in fact, it's about 50% in economics,

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a little bit lower in finance,

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although the international graduates in finance

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has been growing rapidly.

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So that's our first data set.

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The second set of information that we have

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on the job market is from our annual PhD

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conference in economics

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and business that's been going since 1987.

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And just a week

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or two ago, Melbourne University put on the 37th,

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conference, and that's involved over the 37 odd years,

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about a thousand students who were in the process

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of doing their PhD.

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And, that, that represents about, about a quarter

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of all the PhDs in economics

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and finance produced

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by Australian universities over that period.

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And out of the thousand students, we tracked down

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about 700 of them.

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We tracked down what they've been doing since they finished

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their, their PhDs,

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and we found that about 40% of the thousand are now

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academics themselves.

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So about 60% of the 700

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who we tracked down are academics.

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So these data, we compared them with

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a group of other PhDs who didn't go

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to the conference to see how far,

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how much the two groups diff to see if,

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if our data were, were representative.

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And on the basis of research performance metrics such

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as publications, citations, H index,

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and so on, the two groups seem to be broadly similar.

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So we concluded that, that second data set,

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from the PhD conferences was more

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or less representative

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of the underlying population, perhaps.

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Uh, I, I can tell you in the, under the heading of further,

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insights on that labor market, there's,

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I'll perhaps I'll tell you about our, our third data set,

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which is the graduate outcome survey, of the,

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which, which is a Australia wide survey

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of all university graduates.

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And this is interesting

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because we've got earnings data on this

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and everyone's interested in earnings.

06:34.825 --> 06:38.725
So we got a, a sample of PhDs from

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that survey known as GOs graduate outcome survey

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for the period 2016 to 2021.

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And that entailed 254 economists

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and 119 finance PhDs,

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40% females.

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The average age of, these

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graduates were 36, about half

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of them are domestic residents.

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80% of 'em were employed after six months.

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And the there are limitations of, these data,

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they're a sample survey

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and only about 50% of people responded.

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So if those graduates

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who have, who are doing particularly well in the labor

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market, if those people tended

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to respond more enthusiastically, than the others,

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then the results would be biased upwards.

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So we don't know about, which way it goes,

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but, certainly there are,

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there is some sampling variability in all of that.

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So we carried out mitsa earnings regressions

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with these data,

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and we found that if you've got a degree from one

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of the group of eight universities in Australia,

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it's Melbourne University, Sydney University, uq,

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and so on the older universities,

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if you've got a degree from there, then

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you earn about 13% more than the other graduates.

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And and again, this pertains just to graduates

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with a PhD in economics

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and finance from an Australian university,

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if you're a female, you earn 15% less unhappily.

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Uh, if you get a job in the private sector as opposed

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to the public sector, you earn the same pretty much.

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So there's, there's, there's not much premium

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for the private sector, according to our estimates.

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And finally, if you do an economics PhD relative

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to a finance PhD,

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you earn 15% less on average.

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So those are our results on earnings of PhD graduates.

09:04.095 --> 09:07.945
Well, the first challenge is the time taken.

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If you gonna devote three or four

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or so years to, studying for a PhD,

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there's a substantial opportunity cost of all of that.

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You can't go and do other things.

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You can't go and work in the, in the job market.

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You can't go and, do other interesting things.

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So the, so the opportunity cost is a substantial,

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challenge that, PhD students have to overcome,

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whether they're Australian or, or

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or not in their enrollment.

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There's also the challenge for many people

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of simply writing a substantial original thesis,

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together with finding a viable topic,

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finding a supervisor who's willing and able to take you on.

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And these sort of things depend heavily on the nature

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of the work environment, the extent of resources

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that you have at your disposal, whether

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or not it's a a research friendly culture depends on,

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your peers, whether or not it's a broader group.

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And, usually if there's more students involved,

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there's more peer effects, there's more,

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learning from other students.

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And then finally, it all, it, the thing there is a,

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a substantial luck component, in it all.

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Of course, Australian trained students face the competition

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from US trained students

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and US trained typically come out from

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a six year program.

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So they've usually had substantial more,

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coursework.

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In many cases, substantial, more intensive,

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supervision as compared to the Australians.

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But to com to compare Australians with, US trained,

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we've got to be careful to keep in mind the distinction

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between gross output and value added.

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Arguably, the value added Australian PhD is more than that

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of a US train, if only

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because, Australians, do it in three

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and a half years as opposed to six years.

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Australian students have sometimes complained to me

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that they are treated unfairly when they go

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for jobs, particularly offered by the group

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of eight Australian universities.

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They complain that these universities tend

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to favor US trained, PhDs.

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We don't find any systematic evidence of that.

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I'd have to say, when we compare,

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job outcomes publications

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or overall career trajectory, we don't find any evidence

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that one group that dominates the other.

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There's three points that I would make, to,

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conclude.

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The first one is that the prospects for

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PhDs in economics and finance seem rather good.

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Uh, certainly they're better than many other fields.

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Uh, the Australian PhD has international currency

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graduates from Australian universities

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now work at universities around the world.

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They have jobs at the World Bank, the IMF,

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other international agencies.

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Um, the second point that I've made, something

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that we haven't discussed actually,

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but it's a, it's an interesting point.

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Uh, a lot of people tell me that, they're,

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they're quite fascinated by this.

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And that's the prime age of academics.

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When do academics write their most influential paper?

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When do they write their paper that has the most citations?

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And we've used our PhD conference database

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to study this, and we find that, on average

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11 years after graduating the PhD,

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that's when the most cited paper is written.

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But I'd, I'd note that there is lots of dispersion

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around this 11 year mean.

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Now 11 years sounds a long, long time to wait

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before you have your maximum sighted paper,

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before you, hit your prime age.

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But if we think about it, I think that length of time,

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I think it reflects the sheer complexity

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of academ.

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It's a very complex business when you get down to,

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it takes a long time to, for most people

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to learn the business, to learn how to teach,

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for example, to learn how to balance teaching

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and research commitments, how to write papers,

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how to respond to referee reports, how to deal

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with the inevitable rejections

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that we all get from journals,

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and how to deal with the long, long waits between acceptance

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of papers and

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Actually coming out and people, people seeing them.

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Although that's declining that way,

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that period is declining, recently

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with online publications.

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The third and final point that I make is that

15:04.685 --> 15:08.545
the non-academic market is growing in importance.

15:09.485 --> 15:14.145
So PhD students, need to be flexible in,

15:14.355 --> 15:15.785
their, their, their plans

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and, keep in mind this growing outside

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academic, job market outside, opportunities

15:26.775 --> 15:28.825
that, may suit them.

00:00 - PhDs in a certain fundamental sense are the, are the premier degrees offered by many universities? They devote substantial resources to them, mostly in the form of the, of the time of the senior staff that supervise the students. And of course, the students that are attracted to PhDs, some

00:21 - of the brightest young people in the country. And they go on to work for treasury departments, central banks around the world. So they guide the future of economic policy. They guide the future of the economy. Those students are going to the private sector. they get jobs with consulting firms and finance companies. but about half of them, half of these students become academics.

00:50 - So you say that the PhD students in later life, they contribute to public policy. They contribute to business decisions, education and economic literacy, which is so important for the smooth functioning of a democracy. So the reputation of universities rest heavily on the quality of their PhD graduates. So our research, it's designed to measure the quality of those graduates by looking at the job outcomes,

01:22 - how they go in the labor market. so this will provide information for prospective and current PhD students, what they might do after they finish. And also it provides, input to university planning for what type of courses they should offer in the future. There is a substantial literature on the market for economics and finance, PhDs that's mostly US based. And mostly that literature focuses on the academic market.

02:00 - But more recently, there's been a very nice and very comprehensive study of both the academic and non-academic parts of the US market by Foster and Cove, which was published in, a recent issue of the Journal of Economic Perspectives. So fo Foster and co find that non-academic placements are growing in importance for economics and finance PhDs. They, they now account for nearly 50%.

02:33 - And these people go and work for tech companies. Amazon, for example, has 400 economists now working for them. they go to work for consulting firms and they go to work for the public sector. Of course, fostering co also find that there's much more career mobility between the academic and non-academic sectors than was previously thought. So if you initially Take a job, take a non-academic job,

03:03 - you're not frozen out of an academic job sometime in the future, foster and co put it, that the door swings both ways. now that's the US literature. There's, a bunch more limited literature on labor market outcomes for Australian PhDs in economics and finance. And that's what we deal with. We've got three data sets actually that looks at this. The first dataset is from the Commonwealth Department of,

03:35 - education. And, according to those data over the last 20 years, the annual production of economics and finance PhDs has approximately doubled in, in Australia. And it's recently peaked at about 150 graduates per Ann. 40% of those are females, and about half of them are international students. in fact, it's about 50% in economics,

04:06 - a little bit lower in finance, although the international graduates in finance has been growing rapidly. So that's our first data set. The second set of information that we have on the job market is from our annual PhD conference in economics and business that's been going since 1987. And just a week or two ago, Melbourne University put on the 37th,

04:37 - conference, and that's involved over the 37 odd years, about a thousand students who were in the process of doing their PhD. And, that, that represents about, about a quarter of all the PhDs in economics and finance produced by Australian universities over that period. And out of the thousand students, we tracked down about 700 of them. We tracked down what they've been doing since they finished

05:10 - their, their PhDs, and we found that about 40% of the thousand are now academics themselves. So about 60% of the 700 who we tracked down are academics. So these data, we compared them with a group of other PhDs who didn't go to the conference to see how far, how much the two groups diff to see if, if our data were, were representative.

05:47 - And on the basis of research performance metrics such as publications, citations, H index, and so on, the two groups seem to be broadly similar. So we concluded that, that second data set, from the PhD conferences was more or less representative of the underlying population, perhaps. I, I can tell you in the, under the heading of further, insights on that labor market, there's, I'll perhaps I'll tell you about our, our third data set,

06:17 - which is the graduate outcome survey, of the, which, which is a Australia wide survey of all university graduates. And this is interesting because we've got earnings data on this and everyone's interested in earnings. So we got a, a sample of PhDs from that survey known as GOs graduate outcome survey for the period 2016 to 2021. And that entailed 254 economists

06:52 - and 119 finance PhDs, 40% females. The average age of, these graduates were 36, about half of them are domestic residents. 80% of 'em were employed after six months. And the there are limitations of, these data, they're a sample survey and only about 50% of people responded. So if those graduates

07:29 - who have, who are doing particularly well in the labor market, if those people tended to respond more enthusiastically, than the others, then the results would be biased upwards. So we don't know about, which way it goes, but, certainly there are, there is some sampling variability in all of that. So we carried out mitsa earnings regressions with these data, and we found that if you've got a degree from one

08:02 - of the group of eight universities in Australia, it's Melbourne University, Sydney University, uq, and so on the older universities, if you've got a degree from there, then you earn about 13% more than the other graduates. And and again, this pertains just to graduates with a PhD in economics and finance from an Australian university, if you're a female, you earn 15% less unhappily. if you get a job in the private sector as opposed

08:37 - to the public sector, you earn the same pretty much. So there's, there's, there's not much premium for the private sector, according to our estimates. And finally, if you do an economics PhD relative to a finance PhD, you earn 15% less on average. So those are our results on earnings of PhD graduates. Well, the first challenge is the time taken. If you gonna devote three or four or so years to, studying for a PhD,

09:16 - there's a substantial opportunity cost of all of that. You can't go and do other things. You can't go and work in the, in the job market. You can't go and, do other interesting things. So the, so the opportunity cost is a substantial, challenge that, PhD students have to overcome, whether they're Australian or, or or not in their enrollment. There's also the challenge for many people of simply writing a substantial original thesis,

09:50 - together with finding a viable topic, finding a supervisor who's willing and able to take you on. And these sort of things depend heavily on the nature of the work environment, the extent of resources that you have at your disposal, whether or not it's a a research friendly culture depends on, your peers, whether or not it's a broader group. And, usually if there's more students involved, there's more peer effects, there's more, learning from other students.

10:28 - And then finally, it all, it, the thing there is a, a substantial luck component, in it all. Of course, Australian trained students face the competition from US trained students and US trained typically come out from a six year program. So they've usually had substantial more, coursework. In many cases, substantial, more intensive, supervision as compared to the Australians.

11:05 - But to com to compare Australians with, US trained, we've got to be careful to keep in mind the distinction between gross output and value added. Arguably, the value added Australian PhD is more than that of a US train, if only because, Australians, do it in three and a half years as opposed to six years. Australian students have sometimes complained to me that they are treated unfairly when they go for jobs, particularly offered by the group

11:47 - of eight Australian universities. They complain that these universities tend to favor US trained, PhDs. We don't find any systematic evidence of that. I'd have to say, when we compare, job outcomes publications or overall career trajectory, we don't find any evidence that one group that dominates the other. There's three points that I would make, to, conclude.

12:23 - The first one is that the prospects for PhDs in economics and finance seem rather good. certainly they're better than many other fields. the Australian PhD has international currency graduates from Australian universities now work at universities around the world. They have jobs at the World Bank, the IMF, other international agencies. the second point that I've made, something that we haven't discussed actually,

12:59 - but it's a, it's an interesting point. a lot of people tell me that, they're, they're quite fascinated by this. And that's the prime age of academics. When do academics write their most influential paper? When do they write their paper that has the most citations? And we've used our PhD conference database to study this, and we find that, on average 11 years after graduating the PhD, that's when the most cited paper is written.

13:41 - But I'd, I'd note that there is lots of dispersion around this 11 year mean. Now 11 years sounds a long, long time to wait before you have your maximum sighted paper, before you, hit your prime age. But if we think about it, I think that length of time, I think it reflects the sheer complexity of academ. It's a very complex business when you get down to, it takes a long time to, for most people

14:18 - to learn the business, to learn how to teach, for example, to learn how to balance teaching and research commitments, how to write papers, how to respond to referee reports, how to deal with the inevitable rejections that we all get from journals, and how to deal with the long, long waits between acceptance of papers and Actually coming out and people, people seeing them. Although that's declining that way,

14:56 - that period is declining, recently with online publications. The third and final point that I make is that the non-academic market is growing in importance. So PhD students, need to be flexible in, their, their, their plans and, keep in mind this growing outside academic, job market outside, opportunities that, may suit them.

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