Meet Jill. Jill has a Master’s degree, works an average job and makes $60,000/year. She is loyal to her company, and they reward her with an annual average increase of 3%/year over the course of her 30 year career. Jill is a diligent saver, and every year saves 20% of her gross income. Over the course of 30 years, through financial up and downs, she earns an average 5% annual return. At the end of a 30 year career, Jill has a retirement portfolio valued at $1.14 million dollars.
Meet Sarah. Sarah is a PhD student at a Canadian university. She is funded and receives $20,000/year over the course of her 5 year degree. Because she is essentially making minimum wage and just barely supporting herself, she doesn’t accumulate any significant savings. After Sarah graduates, she wants to become a university professor but realizes she has to put in 3 years first as a post-doctoral researcher at another University. Because she has to move but knows it’s only temporary, she doesn’t put down any roots. Yet, she is also now in her 30’s and decides to start a family. As a result of the increased financial demands, she doesn’t accumulate any significant savings during this time period. Finally, after 3 years, she gets a University professorship, starting at $115,000/year (based on a current value of $90,000 and accounting for 9 years of inflation at 3%/year). Much like Jill, Sarah also earns an annual average increase of 3%/year over the remainder of her 30 year career. Starting in Year 9, when she gets her professorship, Sarah finally starts saving 20% of her gross income and over the remainder of her 30 year career, also earns an average 5% annual return. At the end of a 30 year career, Sarah has a retirement portfolio valued at $1.18 million dollars.
Sarah was lucky. She was one of the few people every year who are able to transition from graduate school into academia. And yet, at the end of the day, her retirement savings are only marginally greater than Jill, who earned significantly less over the course of her career. Sarah is a victim of opportunity cost and 9 years of lost compounding on her savings. But as I said, Sarah was lucky because the supply and demand curves for PhD graduates is way off balance. According to a recent article in Nature (The PhD Factory), the number of PhDs graduating in the United States is growing at a rate of 5% per year with no signs of slowing down. In other countries like China, that number is closer to 40% per year. And many of those graduates are coming to North America. There is a huge demand for academic positions but the supply is dwindling. As the demand grows, Universities are becoming increasingly relunctant to hand out lucrative tenure-track professorships like Sarah’s. They are hiring PhDs on a contract basis to teach individual courses, and PhDs are having to collect 5-6 contracts a year just to make ends meet. Such is the new reality of the common academic.
That is, for those who don’t become frustrated, give up and leave academia for industry or government. When this does happen, PhDs are finding that their salaries are only marginally higher than Master’s Degree holding colleagues, if not lower in some cases, according to a recent Economist report (The Disposable Academic – Why Doing a PhD is a Waste of Time). And to boot, they lack the work experience of a Master’s Degree holder who has a three year head start in the field. Just one more example of the opportunity cost of pursuing a PhD. I know this from firsthand experience. About six months before I left my industry job, my firm hired a PhD graduate who was finding no success in academia. His starting salary – less than mine, a Master’s degree holder with real, tangible work experience. The result – I was training him and had I stayed, would always have stayed above him in the hierarchy. While he was off pursuing the admirable goal of academic enlightenment, I was in the trenches paying my dues, and getting paid well to do it.
Being undervalued may be the most frustrating part of a PhD student’s life. Most of the world’s leading research is conducted not by professors, but by graduate students and post-doctoral researchers desperately seeking a job in academics. And yet, the financial valuation is not in keeping with that. Assuming I limit myself to working 40 hours a week (which is rare for a graduate student who has any hope of finishing in a reasonable amount of time), my current hourly salary as a PhD student works out to about $10/hour. Current minimum wage in Ontario is $10.25/hour. Mind you, my income is not taxable so I still hold the edge, but at the end of the day, as a PhD graduate student outputting advanced scientific research to be published in some of the leading scientific journals of the world, I am barely paid more than minimum wage. Gee, no wonder I’m so motivated to work! Hear this now, the academic system is broken! Or at the very least, it has been manufactured into a slave labour market. And a very effective one at that.
So as I work on my latest batch of research, I ask myself – if I’m going to work for minimum wage with no real promise of a well-paying job in the horizon, shouldn’t I at least do something I enjoy? And therein lies the meeting point of economics and personal philosophy. On Monday, I wrote about the more, shall we say, philosophical reasons why I’m quitting my PhD to potentially pursue a career as a high school teacher. I’m not going to argue that the high school teaching system is any less broken. In fact, in Ontario, it’s just as bad as only about 25% of Teacher’s College graduates report finding full-time employment within one year of graduation, according to the Ontario College of Teachers. Regardless of what I do, an opportunity cost will be there. But at least I’ll enjoy what I’m doing. I’d rather put in 5+ years of low income to wind up with a job I love than one I don’t.
