# Salaries in Economics: Does having a PhD Matter?

When it comes to salary, does having a PhD matter? Along with ‘where do economists have the highest salaries?’ it is – without doubt – one of the questions we at INOMICS hear most often. It’s an understandable one, too. The cost of a PhD in the US is between $28,000 and$40,000 per year – and can stretch up to six years. Anyone in that situation failing to ask whether or not the investment is sound, is, well, probably not an economist.

Now, with the release of the INOMICS Salary Report – based on the salary data of almost 2,000 economists – any uncertainty can be laid to rest and the question answered: in financial terms, yes, having a PhD does matter. In fact, to say that it matters is something of an understatement – such is its influence on an economist’s future earnings. INOMICS data shows that globally those with a PhD earn nearly twice as much as those with just a Master’s degree; who, in turn, earn roughly a third more than those with just a Bachelor’s degree.

While these figures appear unequivocal, they are skewed by the prevalence of economists with PhDs in regions with higher salaries. For a more nuanced analysis, therefore, regions should be looked at individually. As graph 1 below shows, though, when doing so the same pattern emerges. In the United Kingdom, Germany, and the EU, the financial incentive to do a PhD remains big: in each region doctorate holders earn significantly more than those with Master’s degrees.

Graph 1: Average annual salaries in Europe by highest qualification attained

Nowhere is this more true than in the US, where, as graph 2 below shows, not only do PhDs enjoy by far the highest salaries – on average almost \$150,000 – they also earn the most in proportion to their Master’s degree holding counterparts, on average 86% more. In Germany, that figure stands at 67% more, while in the EU and UK it’s 49% and 46% respectively.

Graph 2: Average annual salaries in United Statesby highest qualification attained

That an economist’s highest academic qualification is an influential factor in the size of their salary is not surprising: many high-paying senior academic jobs, for instance, are off limits to those without a PhD. What is surprising is the extent of its influence, it appears to be the determining factor.

A final factor that gives value to a PhD is the job security that it offers. As seen in graph 3 below, economists with a PhD were less likely to have experienced a negative effect in their work as a result of the coronavirus pandemic, compared to those with master’s or bachelor’s degrees.Graph 3: Percentage of economists made redundant, had hours or salary reduced, contract not extended or promotion delayed by highest degree earned

In short, a PhD is worth the investment as a means to access the best paying economics jobs. However, this apparently clear statement comes with a health warning: For a PhD is not just a test of one’s intellect, it’s a test of one’s financial clout.

Particularly in the US, but also in the UK and elsewhere, for many young people tuition fees are prohibitively high. The risk of taking on such a high level of debt to cover the cost of a PhD represents an often insurmountable barrier for students from less privileged backgrounds. To begin a PhD is to accept enormous debt, and the accompanying risk. This increases the pressure, especially for those without the financial means to cover their debt, to complete the PhD and find well-paid employment as a result.

To gain access to the best paid jobs in economics a PhD is not only advisable, it may well be essential. Just be prepared to accrue a whole lot of debt in the process.