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Breaking up the quarter million dollar club

Summary:
Ontario eliminated mandatory retirement in 2006. Six years later, professors started to enter the quarter million dollar dollar club. This exclusive group is comprised of university professors aged 71 or older who, due to the curious interaction of federal pension legislation and academic collective agreements, are able to collect a full pension and a full salary. The average salary of a full professor in Canada is around 6,000 per year (calculations available here:  Download Average salary of full profs in Canada). Suppose we assume (a) that the typical university pension replaces 2/3 of a professor's salary and (b) that the typical professor working at age 71 or more is earning at least an average full professor's salary. That puts the total salary plus pension income of most

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Ontario eliminated mandatory retirement in 2006. Six years later, professors started to enter the quarter million dollar dollar club. This exclusive group is comprised of university professors aged 71 or older who, due to the curious interaction of federal pension legislation and academic collective agreements, are able to collect a full pension and a full salary.

The average salary of a full professor in Canada is around $166,000 per year (calculations available here:  Download Average salary of full profs in Canada). Suppose we assume (a) that the typical university pension replaces 2/3 of a professor's salary and (b) that the typical professor working at age 71 or more is earning at least an average full professor's salary. That puts the total salary plus pension income of most professors over the age of 71 well above $250,000, granting them membership in the quarter million dollar club.

Are aged professors worth what they're paid? Some are; most aren't. The picture below shows a stylized representation of a typical university professor's salary, and a typical university professor's productivity.  

Salary productivity

The value of academic services produced goes down over time because, on average, most academics publish less as they grow older, the quality of their teaching is stable or declining, and they typically have less energy for academic administration.

Declining productivity is not, in and of itself, a problem. Academic salary contracts are designed so that pay is lower than productivity in the initial years, and higher than productivity in the later years, for  good reason. The structure of the academic salary contract  encourages workers to work hard when they are young, in the hopes of getting a big pay off when they are old. Such contracts encourage loyalty to a particular employer.

However the current age-salary profiles in most Canadian universities were designed for a world when professors were required to retire at 65. As professors continue to work and collect salaries until they are 70, 80, or 90, the period during which professors earn more than they produce is getting longer and longer, impeding the financial viability of the Canadian university system. 

An employment contract designed for a world where professors had to retire at 65 will no longer be optimal in a world where professors can continue to work as long as they choose. So what is to be done?

The Ontario government has some ideas, described in the recently released discussion paper "Postsecondary  Education: Sustainability and Renewal"  [Download Postsecondary Education Discussion Paper]. The report begins by noting that workers in the postsecondary sector are more likely than others to linger on:

[T]he postsecondary sector is different from the broader public sector in Ontario. With regards to extended careers, the College of Nurses of Ontario’s 2017 Membership Statistics Report noted that only 4% of all nurses in Ontario were over the age of 65. Employees of the Ontario Public Service retired on average at age 59 in 2017. According to the Ontario Teacher’s Pension Plan, and similarly to these other sectors, the average retirement age for Ontario teachers in 2017 was 59. By contrast, in 2017-18, 9.5% of Ontario faculty were over the age of 65, with 3% over the age of 71. In 2016-17, 8.3% of college faculty were over 65.

 The document then goes on suggest some possible alternatives to the status quo:

The ministry believes that there are likely best practices regarding the collection of pensions and full-time salaries currently at postsecondary institutions, or in other areas of the broader public sector, for example:
• Limiting the number of classes retired faculty can teach, or the number of days retired employees can work, without seeing their pensions suspended;
• Requiring that any employees who retire and return to work full-time have their salaries reduced so that take-home pay levels do not exceed pre-retirement levels; and
• Encouraging employees to retire through phased retirement plans with defined end points.

The document then asks for feedback on a variety of questions, including the following:

The ministry is giving consideration to a policy that would limit the ability of postsecondary education employees to simultaneously collect full-time salaries and pension benefits. Such a policy could, for instance, require institutions to reduce salary payments so that salary and pension payments combined are not greater than the employee’s salary prior to pension payments commencing. If this were to be pursued as a policy,
o Does your organization/ do your members have any concerns if the ministry was to proceed with this initiative?
o Would such a policy conflict with current terms of employment for all/some/none of your members?
o What is your best advice to the ministry?

I suspect that the ministry's proposals will be strongly opposed by Ontario university's faculty associations. This is, in my view, a serious mistake.

If universities can't get rid of professors when they're old, they will start trying to get rid of university professors when they're incompetent, or simply surplus to the university's requirements. That will mean the end - or at least the serious erosion - of tenure as we know it. 

Frances Woolley
I am a Professor of Economics at Carleton University, where I have taught since 1990. My research centres on families and public policy. My most-cited work is on modelling family-decision making, measuring inequality within the household, feminist economics, and tax-benefit policy towards families. I hold a BA from Simon Fraser University, an MA from Queen’s, and completed my doctorate at the London School of Economics, under the supervision of Tony Atkinson.

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