The reason for the exodus is that economics graduates can earn so much in investment banks and consultancies, while in academe they earn a pittance. With a master's degree, starting salaries in the City can be pounds 80,000 or more, double what a professor of economics may earn. Many go on to make pounds 200,000 a year, and some earn astronomical salaries. Only six British graduate students with first-class degrees embarked on PhDs this academic year at the 13 universities with the highest ratings for economics, says the report, commissioned by the Bank of England, the Treasury and the Economic and Social Research Council (ESRC). At both the London School of Economics and Nuffield College, Oxford, no postgraduates signed up for PhDs in economics last autumn.
British academic economists are are on the verge of becoming a vanishing species. Only 6 per cent of economics master's degree students in the United Kingdom say they aim for university life. If the trends continue, economics departments may become staffed by foreigners prepared to work for the low wages, or by second-rate academics."The situation is very serious," says Professor Richard Layard of the LSE.
Ten or 20 years ago there were 10 times as many postgraduates at the best universities applying to take PhDs, according to Professor Andrew Oswald, of Warwick University, who compiled the report with Professor Stephen Machin, of University College London, and the LSE.
"It used to be extremely competitive to get an ESRC studentship," says Professor Oswald. "Now it isn't. People who want to stay on do a master's and then almost all of them leave. At Warwick, at the start of the Eighties, about 80 per cent of students with firsts went on to postgraduate training. Now the figure is three in 10.
"There's been a tremendous migration out of postgraduate studies because people are going to the private sector. Can we run a university system, especially in our elite universities, essentially when we have no one with a first in the classroom?"
Roland Meeks, 24, is typical of the sort of young graduate who would in the past have gone on to do a PhD without hesitation. He is just completing an MSc in economics at Warwick University and is wondering whether to do a PhD and go into academe. Warwick would very much like him to stay on.
Having graduated in 1996 with a first-class degree, he worked for Credit Lyonnais in the City as a research analyst for 18 months. Before he left he was working 12-hour days for an annual salary of pounds 25,000. He has had to get used to living as a student again and is debating whether he can afford another three years out of the job market without starting a pension.
The pay worries him, but he thinks academic life may have compensations. "It would be slightly galling to be on pounds 18,000 a year when you're 27," he says. "On the other hand you know more when you've done a PhD, and you get to pursue something and possibly create and discover something."
With an MSc under his belt, Mr Meeks's salary could exceed pounds 80,000 if he returned to the City, more than twice what a professor of economics might earn. The top pay for senior university lecturers on the national salary scale is pounds 33,900 a year, according to the report which is published by the Centre for Economic Policy Research. Academics who don't win promotion to a readership or professorship are retiring on that kind of salary at the age of 60.
"Most of them have first-class degrees," said Professor Oswald. "Even in the best economics departments, they're retiring on what a police constable earns."
According to the report, professors are better off than other academics because they can negotiate what they earn with their vice-chancellors, but few are thought to earn pounds 50,000.
"Unless professors of economics at the top institutions in Britain start to be paid pounds 100,000 a year, I don't believe we will get a flow of the cleverest young men and women," said Professor Oswald.
"If we pay badly, then the parents of the next generation will discover that their children are not being taught by talented people."
Vice-chancellors could be more open about how much they pay economics professors, suggests the report. Some of them are now being paid moderately well, and "the odd newspaper headline saying `University economist earns pounds 70,000'", would help, says the report.
Some economics professors told The Independent that the only way to deal with the problem was to abolish national pay scales and allow departments to pay closer to market rates, as they do at American universities.
"There is no point in going into an academic career in the United Kingdom now," said Professor Richard Portes, the secretary general of the Royal Economic Society.
The report recommends that the ESRC run a more effective publicity campaign in favour of research. If taxpayers' money is supposed to subsidise activities with high social benefits, perhaps more money ought to be targeted on PhD education, it says. "It is academic researchers who discover how the economy works. Private-sector economists merely draw upon ideas that were discovered in university corridors."
The ESRC is considering paying a bounty to PhD students in economics. The report says this could help. However, the LSE's experience suggests this may not be the answer. Many of its best graduate students go to America for PhDs because US universities are world leaders in the subject.
"We give full scholarships to PhD students that are quite generous," said Professor Christopher Pissarides, who is convener of the LSE's economics department. "We couldn't find a single British student to take them last year."
Universities are also finding it difficult to recruit postgraduates and keep academics in information technology. Things are so bad in computer science and engineering that 558 research studentships (worth more than pounds 3m) remain unfilled at the Engineering and Physical Sciences Research Council (EPSRC) for the 1998-99 academic year.
The problem has been getting worse during the Nineties and has now become so serious that the EPSRC is investigating. David Clark, its director of engineering sciences, says one reason must be the buoyant economy. The research councils always do better in times of recession.
"Second, anyone with basic IT skills is being snapped up because of the Millennium Bug and the explosion of the Internet," he said. And engineering graduates are in scarce supply because they tend to be quite attractive to industry. Like economics graduates, IT graduates can be hired on starting salaries of pounds 25,000. Why should they stay on at university and increase their student debt when they can go into industry for good money?"
According to Professor Tony Hey, the head of the faculty of engineering and information technology at Southampton University, the only way to fill research studentships is to take "lower-quality people" or hire students from Europe and overseas. "We have quite significant money set aside for helping us give bursaries to students," he said. "We allow them to do some teaching and to supplement their income."
Professor Hey says the problem will only be solved with money. Otherwise British computer science will largely wither away.
`YOU CAN EASILY EARN 10 TIMES MORE'
A one-time lecturer at the London School of Economics, Dr Peter Boone, 35, gave up teaching two years ago and took a job with Brunswick Investment Bank in Moscow, where he earns 10 times his last salary of just under pounds 30,000. An expert in emerging markets, he wanted hands-on experience in a post-socialist economy.
"I was very interested in macro-economic policy and this work is very much related to that. If you want to have a family and you live in London, the salaries are not at all good. You easily earn 10 times more in the private sector - and you can earn substantially more than that. I would like to go back into academe eventually. I see what I'm doing now as part of my career and range of interests. The advantage of doing this for a few years is that you can feel much more comfortable financially - and then you can go back.
"The pay and conditions in academic life put people off. You compare them with the private sector and find you're making a huge sacrifice in academe. But universities will never be able to pay a market rate. Over the past 15 to 20 years the financial markets have really taken off. For a whole range of structural reasons salaries are out of line with other sectors of the economy. But you can certainly make things more comfortable for academics."Reuse content