March 2, 2014

I THINK WE NEED AN EXCESS ENDOWMENTS TAX: Universities engage in “endowment hoarding.”

A downturn in the endowment equivalent to a 10% reduction of a university’s budget leads to a 4.9% reduction in the number of tenure-system faculty during the following year relative to similar universities that did not experience shocks to their endowment funds.

A shrinking endowment also results in cuts made to support employees such as secretaries, but found no similar effect on the numbers of adjunct faculty or administrators. All this suggests that that endowments are being used to keep administrators’ jobs safe during economic downturns rather than as means to preserve academic quality of the institution. More broadly, one has to ask what the point of university endowments is if there is such an emphasis on growth—rather than protecting the institutions they were created to benefit. The inability of universities to cut administrative staff when endowments are shrinking is also troubling.

At some point, you’ve hoarded enough money.