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A Command Economy for Economists

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By Robin Smith

Economists believe in free markets. We believe in letting the "invisible hand" guide processes. The only time we believe in market interference is when there are negative externalities (which is why we have pollution regulations), when there are problems with public-owned goods (which is why we have public programs), or when there is monopoly power (which is why Bill Gates is sued from time to time).

In almost all other cases, where there is a supply of something and a demand for it, economists like to let things sort themselves out -- except when it come to the labor market for economists. Maybe we intervene because we care more about saving on search costs than on making the best match. Or maybe we think we are smarter than the system and can game the market correctly.

The academic market in economics also is unusual in that it functions as a command economy (maybe that's typical of other fields, too; I only know my own). An efficient market would allow students to apply to any department or at least to choose where they apply based on their preferences (like region, weather, teaching load, etc.).

But in economics, Ph.D.'s send out applications based partly on how their own department has ranked their prospects. In my department, student rankings are decided at a big meeting sometime in early fall where faculty members discuss which Ph.D. candidates will be going on the market and sort them into "bins." The rumor is that there are three bins -- one for stars and almost stars, one for middle-of-the-road people, and one for people who would be advised to try for a job outside academe.

The top doctoral programs also get ranked, based on a mix of factors that I won't bore you with. In my department, Tier 1 includes the top five departments, Tier 2 includes those ranked 6th through 15th, Tier 3 is 16-30, Tier 4 is 31-48, and Tier 5 is 49-80. Below that lies a large pool of economics departments that don't get ranked at all because they don't have graduate programs.

So, the labor market for economists at top institutions starts with advisers telling their students where they are "allowed" to apply based on those rankings. It's viewed as a courtesy to cut down the workload of other top departments.

Sometimes the rankings are right, but sometimes they go wrong. For example, one woman in my office was told by her advisers that she could apply only to low-ranked departments, but then she started getting requests for her CV packet from top-10 programs. She ended up with conference interviews at pretty much all of the top departments and very nice fly-outs after that.

As a middle-of-the-road student at a top program, I was told I could apply to departments in the middle range of the rankings -- not the top 10, but not the bottom range, either.

So I sent out my applications and waited -- by far, the most painful part of the process. And mysteriously, I got quite a few conference interviews, but only two of them were at ranked programs.

Some stealthy work by my primary adviser determined that that was because, unluckily for me, my second adviser had more than his fair share of "stars" on the market already and, alas, I was not one of them. The stars are the people who, if they don't end up at Harvard, Chicago, or Princeton, have to "settle" for places like Dartmouth, Brown, or Boston University. Because most junior economists go on the market A.B.D. with very few publications, recommendations have a greater weight than they might in other fields.

It wasn't that my secondary adviser had written a bad letter about me. It just looked really bad compared to the ones he had written for his star advisees. Rather than being compared to the middle of my class, I was being compared to the top -- and not to my advantage.

I ended up with two telephone interviews at top-five places where his other advisees hadn't applied, and I interviewed with 20 other programs that didn't make our ranking system.

I know, I can't complain. Quite a few of the 22 departments are wonderful places to work, with course loads and research opportunities that would have allowed me to be both happy and productive. A couple of them were top liberal-arts colleges. Going into the conference interviews, I was at peace.

And the interviews themselves were fun and exciting. I felt like a debutante, if debutantes could be valued for their clever research. I messed up a few interviews. In one I was so nervous that I went into a valley-girl spiel when they asked me about my teaching interests, and in another I inadvertently insulted the search-committee chair. I also had a couple of courtesy interviews (arranged by collegial prodding) that didn't go so well because those doing the interviewing were not really interested in me.

I got my first callbacks from the two interviews I thought I had bombed. That turned out not to be a fluke. I got another callback from a small cash-strapped state institution in a good location. My final one came from a small liberal-arts college that wanted to make sure I really was interested in the job before it flew me out. I was.

A couple of weeks passed. Most of my friends spent those weeks jetting off to interviews at Tier 1 and Tier 2 places, with a few Tier 3's just for backup. A few of my friends who had interviewed at top-ranked or close-to-top-ranked programs would have to wait until the stars decided which of their 15 offers to accept, so that the departments they turned down could get on with their second round of calls. Not a happy situation for those close to the top.

My primary adviser e-mailed me after checking up on how I had fared. I had done a terrible job at one of my courtesy interviews. But then, surprisingly, committee members at the second-highest-ranked program on my list told my adviser that I had interviewed so well that they thought they didn't have a shot at me. They planned to put me at top of their shortlist should they move to second-round interviews.

Then committee members at the best department on my list told my adviser that I was too good for them as well and that they didn't want to invite me out only to have me turn them down. My adviser told them something about my situation, and they tried to change their shortlist, but it had already been approved by their administration and they weren't allowed to rework it.

So there I was, too good for some places and not good enough (on paper) to have gotten interviews at other ranked programs. I wasn't the only candidate in that position. It seemed to be a common problem this past year for many almost-a-star candidates, the ones who had just missed getting those Harvard and Princeton interviews. There may be some consolation in knowing that places aren't calling because they think you're too good for them, but that's cold comfort when accompanied by the dread that you'll have to go on the market again.

The weird thing is, even after all of the anxiety, everyone seems pretty happy about where they ended up.

A friend who almost didn't get a job got a top government position at the last minute that we all agree is the best possible match for her (although it took a phone call to convince the office that she really would be willing to take the job).

That friend who initially wasn't allowed to apply to most ranked programs ended up getting tons of offers and taking a position at the same place where another top graduate is going.

I ended up getting a campus interview at that second-highest ranked program on my list, and was very pleasantly surprised with what the program had to offer, both in terms of support and the geographic area. I may never find a better position, especially in a location where I could afford a house.

Maybe people are just happy in hindsight and would have been happier had their advisers and search committees not tried to overthink the market.

Or maybe after the first-round interviews, departments had more information and were able to correct for mistakes. Programs that had not yet hired could get "bargains" in the form of almost stars who had not gotten a position in the first round. Advisers could place last-minute phone calls on behalf of those in danger of coming up short.

Sure the first round isn't exactly a free-market process, but search costs to interview and fly out candidates are pretty high, and maybe this crazy procedure is as good a second-best solution as any.

And yes, mistakes were made. For example, a prominent think tank discovered that more Ph.D.'s had accepted its job offers than it had anticipated. It had overhired before even finishing flying out candidates. But its new employees were of high quality, even though it might have nabbed a few better candidates by waiting. Maybe the match was good enough.

A wise professor told us that even if the market doesn't match people and programs efficiently the first time out, eventually everyone ends up where they belong. People at top programs may move down, and people at lower-tier ones may publish themselves up. One famous professor in our department supposedly struck out on the market his first year out of graduate school, took a postdoc, and made a big comeback two years later.

Maybe the market works in the long term, if not in the short. It's a comforting thought.