Can Europe pay top academics as much as bad footballers?

Creating Europe’s Stanford

‘When you graduate from one of the world’s top universities, you are automatically eligible for a visa to work in the United Kingdom. The UK government helpfully maintains a list of those universities that qualify as “top” — those appearing in the top 50 in at least two out of the three main global rankings. In 2023, only four universities in the entire EU would allow you to qualify for this visa: Paris Sciences et Lettres, LMU Munich, Delft, and Karolinska Institutet in Sweden. In contrast, the United States has every year around 20 universities on the list, including the very best in the world, while China increased its presence from what would have been nothing in the near past to six in 2023. Small countries like Singapore or Switzerland have two universities. If the UK were on the list, it would have at least five universities on the list, including 2 or 3 in the top 10– versus none in the top 10 for the whole EU.

The truth is that many EU universities provide a great education and contribute to research across fields. However, when it comes to the peak of global academic excellence, the EU's presence is strikingly limited. This is not just an academic concern—it has implications for the EU's ability to compete in the high-tech sector. 

University research drives innovation 

The importance of university research for innovation and the spillover effects it generates are well documented. A survey of the literature (Carlino and Kerr, 2015) concludes that “Silicon Valley and Boston became important centers for innovation in part because of their proximity to Stanford University and MIT”. 

Some papers have sought to obtain causal estimates of these effects. Three examples. Aghion et al. (2009) find that an exogenous increase in research university activity boosts innovation, and that this effect matters most for states that are close to the technology frontier. Kantor and Whalley (2014) find that a 10% increase in higher education spending in an urban county increases the average worker’s income in the non-education sector by 0.8%. This effect is up to twice as large in industries that used the university’s patents. Hausman (2022) finds that the 1980 Bayh-Dole Act that increased returns to commercializing innovation by universities led to significantly larger growth in employment, wages, and payroll in industries more related to the technological strengths of nearby universities.

Universities matter for innovation and innovation increases welfare. How can Europe address our lack of cutting-edge universities?

The Salary Gap

You do not win the 100 meter race by having good average athletes, but by having some stars. And you do not win the innovation race without top researchers. Sadly, in order to have these researchers, you need to pay them.

A top researcher at a top US university usually has a salary of over half a million dollars and the best can command pay well over $1 million. Documenting this is hard since most salary information at the very top is quite opaque, but there is one exception: all public employees salaries are disclosed in California, and searchable online. These include the employees of the University of California. More than 200 staff (academic and non-academic) earn over $1 million. Many of the best paid are medical personnel, coaches, and administrators, but others are not. The point remains: the university pays high salaries for all top academic personnel. Anecdotally, in the economics market, the initial salary of a recent PhD in economics in the US job market in top departments now is around $170,000 plus 2/9 for Summer support.

The comparison with Europe is striking. Consider Spain. The Spanish Complutense university, the oldest university in Madrid, one which appears among the top 100 in Europe, and with a student population of 70,000 students, lists the salaries of Full Professors (Catedrático) here. A full professor makes €47,573.26 (note the decimals!), plus €2,091 for each positive evaluation of teaching and research up to a maximum of 12, and an additional €3,000 complement– around €75,000 for a top professor, regardless of the field. This is it. The salary may be too much for some catedráticos who barely step into their office, and it is way too little to attract professors in the international market. 

The case of Italy, France, and Germany are similar, although the salaries are a bit higher. In Germany, assistant professors earn a salary of around 65,000 gross, associates around €85,000 with bonuses and full professors start at €95,000 and can go up to the level of an undersecretary in government, close to but rarely about €200,000. 

The basic problem with these salaries is that the market for researchers is global. Top universities, like top soccer teams, compete worldwide for the best talent. Imagine if European soccer clubs could only pay players a quarter of what American or Chinese teams offer. How quickly would Europe's best players leave? Similarly, we can't expect our universities to stay world-class when they're always outbid for top researchers. (We will leave for the future the question as to why Europeans are so happy to tolerate “inequality” when it is about sports, but never when it is about rewarding a researcher who may discover a cancer vaccine.)

The salary gap particularly hurts Europe in fast-moving global fields like Artificial Intelligence. The next chart shows that, of 25 top places in the world for AI research in 2022 (of which 20 are universities) not a single one is in the European Union. 

Top 25 Institutions for AI research

Source: MacroPolo Global AI Talent Tracker (https://macropolo.org/digital-projects/the-global-ai-talent-tracker/)

To stay competitive in cutting-edge research, Europe must change the rules. We need to let our universities offer pay that matches the world's best. And it is not just salaries that count. Research facilities and administrative support usually go together with the higher salaries paid by top US institutions.

Potential solutions

1. A non-solution: tinkering around the edges 

Europe already tried tinkering in the past, by creating from scratch a new top European university. In 2008, the EU established a European Institute of Innovation and Technology (EIT) with the aim of replicating the success of institutions like MIT. If you have not heard of it, it is not your fault. The effort went badly from the start, as EU countries couldn't agree on where to put it. So, in true EU fashion, governments compromised by breaking it into pieces and spreading it across multiple cities. So much for agglomeration effects. 

The current attempt at tinkering appears in the Draghi (2024 a, 2024 b) report, which acknowledges the problem of limited top-tier universities. He proposes creating an 'EU Chair'—a prestigious position to attract world-class scholars by appointing them as top European officials.

The solution is unlikely to work, for similar reasons as the EIT. The EU Chairs would probably have to be allocated by geographic quotas (no country will want to be without one) and probably by quotas of perspectives and other non-academic issues (you can bet on a de-growth chair). Politics, in other words, will determine the allocation. Moreover, while the internal governance of the universities does not change, these EU Chairs will be like aliens parachuted in existing departments, earning much more than the rest, and often generating envy and resentments. Finally, the potential applicants may doubt the commitment of the EU to the program and hence about the validity of their “tenure.” I fear this system will neither create top institutions nor generate rising stars. 

2. Autonomy for Universities

A reason European university systems cannot attract and reward exceptional talent is that, in many countries, universities require state approval for budgets and follow rigid, uniform pay scales based on rank and seniority. Recall the decimals in the Complutense salary table. In contrast, successful systems in countries like the US, Singapore, Switzerland and the UK allow universities to manage their own budgets and make independent hiring decisions.

Systematic evidence supports the link between autonomy and improved performance. Aghion et al. (2010) show that universities with more control over their budgets and greater reliance on competitive grants achieve better research outcomes. For example, U.S. universities in states with higher autonomy and more competition from private institutions generate more patents. This suggests that the ability to secure funding through competition, rather than relying solely on government support, drives innovation. During times when merit-based federal research funding was prominent, these universities produced more patents, showing how competition for resources enhances productivity.

Governance reform is critical. But autonomy alone will not fully solve the challenge—changes in funding are also necessary. 

3. Competitive Funding Mechanisms

A path to creating leading research universities is to increase research-based competitive funding, as the Draghi report also suggests. The European Research Council has been strikingly successful at allocating funding on the basis of merit, and has managed to fund a wide range of first rate researchers everywhere in Europe. The Draghi proposes to extend this to funding institutions.

This is sensible, with two caveats. First, can the ERC, like it does with individuals, avoid letting the allocation be contaminated by geographical and other type of “balance” considerations like the ones mentioned above? If the end result is another EIT program, the effort will have failed. Second, without changes in university governance that allow universities to use this money well, even if the money were to arrive, it is unlikely to be successful. The money would be more likely to be spread around the entire University in traditional continental European egalitarian ways, than to be used to truly reward innovation.

4. Tuition Fees

Higher tuition fees can provide the funds needed to hire top professors, improve research, and offer better education. This can be done while at the same time ensuring it does not make it harder for students from all backgrounds to attend university. 

Fees have several advantages, beyond the obvious one of providing more funding to allow universities to attract top talent and support advanced research. They provide a signal of demand for courses and programs, encouraging them to offer programs that meet student interests and job market needs- the more they do that, the better they will do financially. It also allows them to diversify their income and become less dependent on government budgets.

This can be done while maintaining access to education and basic fairness. The United Kingdom and Australia show the way. Three key mechanisms are used:

• Income-Based Repayment: Students receive loans to cover tuition. They start repaying only when they earn above a certain income after graduating. This means those with lower incomes aren't burdened.

• No Upfront Costs: Students don't pay fees before starting university. This removes financial barriers for those who can't afford to pay right away.

• Extra Support: Grants and scholarships are available for students from low-income families to help with costs.

5. Philanthropy and Private Funding

Another potential source of investment is philanthropy. It is striking that the majority of world class universities are US-based and privately funded (with some exceptions, such as UC Berkeley), while those in Europe are public. At a time of strained public budgets and demographic pressure, the development of privately endowed research universities seems an obvious path forward. 

The arguments against this call for private endowments are many: European universities have a long and proud tradition, with a history stretching one thousand years back (Oxford, Bologna, Salamanca) and always state and church-affiliated. The tradition of philanthropy in the US is mostly inexistant in continental Europe, where the state imposes high taxes and provides all services. There may be a cultural issue as well- in the US, donors are admired. In Europe, they may be scared of drawing the limelight and getting scorn instead of admiration.

But we will not know how far this route can take us unless we try to imitate some of the US advantages. We need a more uniform, favorable and clear legal treatment of philanthropy across the European Union, increasing the tax deduction limits for charitable (or at least, those oriented to education) contributions, and a favorable treatment of charitable bequests to incentivize legacy giving. And the political system must help change the culture of donation, to help private donors overcome the fear of stigma or getting in the limelight and being criticized for actually doing good. 

Reforming Universities is hard, but necessary 

Governance reforms are politically challenging. Vested interests are overrepresented among faculty and students. I have been stunned since I was a university student (and student rep in University government ) in Spain by the radical defense by students of a system where “you do as if you teach, we do as if we study.” Current students don’t want reforms that will make future university students better, and mediocre faculty have gotten used to the “good life.” Reforms would inevitably mean allowing for greater inequality among universities, with resources flowing to those that demonstrate excellence. And we know inequality, even to the benefit of all, is hard to accept in European political systems (although not among football players!). 

Even more difficult politically is the introduction of tuition fees. These schemes are considered political poison by politicians, particularly after the spectacular flameout of the Lib Dems in the UK after they went back on their promise not to introduce it. But politicians should remember that the Conservative party was also part of that government and was returned to office. No one wants a failing educational system.

The final objection that may be raised is that the problems are cultural or somehow inherent to our countries: our bureaucratic countries are somehow unable to attain academic excellence. This is non-sense of course. Consider business schools as a counterexample. The countries with the most bureaucratic university systems, France, Italy and Spain, boast several world class business schools, according to the international rankings– such as Insead, Bocconi, IESE. When the right incentives are in place, excellence can flourish also in Europe. The problem is that the current system is designed to reward mediocrity. Many elements of the system are responsible for this outcome, but a crucial one that may be badly understood by European policy makers is the way salaries are set, their level and their structure. 

Without changes in governance and funding model, the EU's efforts to lead in high- tech will be held back by a lack of elite research institutions. By empowering its universities with greater autonomy and competitive funding — and by being willing to give Europe’s top academics a fraction of what is earned by its top athletes — the EU can create an environment where research superstars can be nurtured and retained despite global competition.

References

Aghion, Philippe, Mathias Dewatripont, Caroline Hoxby, Andreu Mas-Colell, and André Sapir. "The governance and performance of universities: evidence from Europe and the US." Economic policy 25, no. 61 (2010): 7-59.

Aghion, Philippe, Leah Boustan, Caroline Hoxby, and Jerome Vandenbussche. "The causal impact of education on economic growth: evidence from US." Brookings papers on economic activity 1, no. 1 (2009): 1-73.

Andersson, R., Quiley, J.M. and Wilhelmsson, M. (2009). ‘Urbanization, productivity, and innovation: Evidence from investment in higher education’, Journal of Urban Economics, vol. 66(1), pp. 2–15.

Carlino, Gerald, and William R. Kerr. "Agglomeration and innovation." Handbook of regional and urban economics 5 (2015): 349-404.

Draghi, Mario. 2024a. “EU Competiveness:  A competitiveness strategy for Europe ” EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en

Draghi, Mario. 2024b. “EU Competiveness:   In-depth analysis and recommendations” EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en

Hausman, Naomi. "University innovation and local economic growth." Review of Economics and Statistics 104, no. 4 (2022): 718-735.

Kantor, Shawn, and Alexander Whalley. "Knowledge spillovers from research universities: evidence from endowment value shocks." Review of Economics and Statistics 96, no. 1 (2014): 171-188.