Guess whose jobs don’t get cut when university endowments shrink?

[Joanne98]

After the stock market’s disastrous downturn in fall 2008, four academics and researchers decided to analyze how financial shocks to endowments affect university operations.

The working paper, “Why I Lost My Secretary: The Effect of Endowment Shocks on University Operations,” was prepared for the National Bureau of Economic Research, where two of the authors are research associates.

Using 1986-2008 data from 200 doctoral universities, including the University of Minnesota, the team found predictable and not-so-predictable reactions to seesawing investments. It’s important to note that the data from the after-effects of the 2008 crash were not available.

The last negative shock analyzed in the study was the tech bust in 2002, which was “half as bad” as the 2008 crash, according to co-author Jeffrey Brown, professor of finance at University of Illinois (Champaign-Urbana).

"Anybody who works in a university knows that as a result of the recent crisis, it seemed like a natural question for us to figure out," Brown said. "We realized there wasn’t a whole lot written about this," at least from the economic standpoint.

The study’s authors didn't perform a university-by-university analysis, so it's not possible to break out how one university in particular responded, he said.

Just about everybody feels the pain, except ...
These findings stand out to me even though they might not surprise the rank and file in higher education:

• Universities with the largest negative shocks to their endowments were more likely to cut support staff and maintenance staff but not administrators.

• Less-selective institutions cut spending on tenure-system faculty while increasing salaries for adjuncts and instructors.

• Universities that invested in hedge funds or other risky assets made larger cuts to tenure-system faculty and secretarial staff.

• More-selective universities reduced student financial aid for the first fall semester after the decline and they accepted fewer freshmen.

Go figure. Nearly everyone but a university’s administrators was more likely to feel the pain of a decline in the endowment’s value. I asked Brown why administrators were spared.

http://www.minnpost.com/nextdegree/2010/04/29/17740/guess_whose_jobs_don%E2%80%99t_get_cut_when_university_endowments_shrink