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Academic wages and pyramid schemes: a mathematical model

Mathematical Physics & Probability

Speaker: Robert McCann, Toronto University
Location: 2112 MSB
Start time: Wed, Oct 9 2013, 2:10PM

Wages are determined by supply and demand. In a steady state economy, individuals will choose between being workers, managers, or teachers, depending on their skills and market conditions. But these skills are determined in part by the education market. Some individuals participate in the education market twice, eventually marketing as teachers the skills they acquired as students. This feedback mechanism has the potential to produce larger and larger wages for the few most highly skilled individuals at the top of the market. We analyze this phenomena using a toy model. We show that a competitive equilibrium exists, and it displays a phase transition from bounded to unbounded wage gradients, depending on whether or not the cumulative influence of each teacher increases or decreases as we pass through successive generations of their students. Based on work in progress with Alice Erlinger, Xianwen Shi, Aloysius Siow, and Ronald Wolthoff.