Market Structure in the Production of Economics Ph.D.'s

The annual output of economics Ph.D.'s in the United States has remained fairly stable from the early 1970s until the present. Production methods are uniform across producers. Firm-level outputs have been stable among established producers. Entry and exit have been roughly offsetting. Market shares of the leading producers have not changed considerably for the past two decades. It is safe to say that the production of economics Ph.D.'s is a mature industry. How would producers respond to a large increase in the number of students seeking the degree? Or more pessimistically (and given the recent dearth of academic job openings, perhaps more realistically), how would producers respond to a significant decline in the number of students seeking a Ph.D. in economics? Our analysis of the short-run and long-run historical responses of suppliers to changes in market output leads us to predict the following. An increase in the total number of Ph.D.'s would be initially accomplished through small expansions in the sizes of all programs. With the passage of time, however, larger programs would resume previous production levels. The expansion of market output would be absorbed by permanent expansions in the sizes of small and medium-sized departments, as well as by the entry of new Ph.D. programs. If the economics profession is hit by a decline in graduate school applications and enrollments, the long-run outlook for small and medium-sized programs is not rosy. A decline in output of 200 Ph.D.'s per year would lead to considerable shaking out. In the late 1960s, it took fewer than 100 departments to produce 700 Ph.D.'s. At that point in time, the industry was growing and not in long-run equilibrium, but even taking that into account such a decline in output might cause 15-20 programs to shut down. We would likely also see scaling back by many well-established small and medium-sized programs.