Question

You're interested in whether universities pay extra to employ professors who went to high-ranked PhD programs vs. lower-ranked PhD programs. You gather a sample of data for tenure-track, PhD-educated research university professors, with Y=salary ($1000s/yr), X1=rank of PhD program, X2=job title (assistant, associate, or full professor), X3=years of experience, X4=1{female}, and X5, X6, ..., are dummies for different departments (Economics, English, etc.). You might still worry about OVB because

a. most of the highest-ranked PhD programs are at private universities, which usually have higher tuition

b.professors who serve as department chair usually get a salary bonus in return for their service

c.professors with strong geographic preferences may have less bargaining power when negotiating for higher salary

d.better PhD programs attract better students who would do better research regardless of which PhD program they attended, and research is the primary determinant of salary

Answer 1

The objective of our study is to determine whether universities pay extra to employ professors who went to high-ranked PhD programs vs. lower-ranked PhD programs.

Now, it is a known fact that salaries are linked to research output, and many institutions give incentives for research.

In the independent variables, variables such as rank of PhD program, job title, work experience, gender and department are included. However, no variable truly measures the research output or associated incentives. Hence, there is bias caused by this omitted variable.

Thus, the correct answer is:

d) better PhD programs attract better students who would do better research regardless of which PhD program they attended, and research is the primary determinant of salary