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# Differences in Faculty Compensation

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You are the human resource manager of a local university, and you have been asked to explain the differences in compensation among instructors, assistant professors, associate professors, and full professors. How is compensation determined for these different positions?

#### Solution Preview

The differences in compensation among instructors, assistant professors, associate professors and full professors can be explained in terms of different levels. First, the university determines the policy if it will pay equal to, less than, or more than the average salaries paid for each position. If the local university decides to pay equal to the average salary for each position in the United States, the local university will determine the national average salaries for each position. The average salary will be paid for each position. For example, if the average salary for an associate ...

#### Solution Summary

This solution explains differences in compensation of faculty positions. The sources used are also included in the solution.

\$2.19

## Econometrics interpretation and slope parameters

The median starting salary (SLRY) for new law school graduates is explained by

log (SLRY) = &#946;0 + &#946;1 LSAT + &#946;3 GPA + &#946;4 log(LIBB) + &#946;5 log(COST) + &#946;6 RANK + e

where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA for the class, LIBB is the number of volumes in the law school library, COST is the annual cost of attending law school, and RANK is the rank of the law school (with rank 1 being the best).

Explain why we expect &#946;5 &#8804; 0.

What signs do you expect for the other slope parameters?

Using a sample data of 136 new law school graduates, the estimated equation is

log(SLRY) = 8.34 + 0.0047 LSAT + 0.248 GPA + 0.095 log(LIBB) + 0.038 log( cost) - 0.0033RANK

N = 136; R2= 0.842

What is the predicted ceteris paribus difference in salary for schools with a median GPA different by one point? (Note the dependent variable is in log form)

Interpret the estimated coefficient on the variable log (LIBB).

Would you say it is better to attend a higher ranked law school? How much is a difference in ranking of 20 worth in terms of predicted starting salary?

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