Oil money has flooded into soccer/football, golf, and a host of sporting events. The prevailing term is “sportswashing” i.e. the attempt to reinvent the public image of the Saudi Royal Family, United Arab Emirates, Qatar, and anything petro-state adjacent. Partners in these endeavors can be found regularly providing sound bites praising parties whose records in human rights are less than sterling.

I just want to point out one thing: when your extended family’s net worth is $1.4 trillion (with a `T’, not a typo), your public image remains important, but nonetheless a potentially second order concern. What is a first-order concern is maintaining that wealth for the generations to come. When it comes to the oil-based wealth, the sun is setting. Not in terms of calendar months (not yet), but certainly in terms of generations. Oil, as the fulcrum of geopolitical history, is in it’s final period. Which is simply a long-winded way of saying that if a petro-state magnate cares profoundly about the global standing of their grandchildrens’ grandchildren, they’re looking for ways to move away from oil.

Oil is one of those special commodities that is of interest to economists because it enjoys high demand, has few substitutes, and it’s supply is relatively inelastic. You can’t merely will oil into existence. So if your family happened to enjoy high status and power over a previously low-value plot of land that an ocean of oil randomly happened to exist beneath, you could parlay that into tremendous wealth and power in the world. And they did.

With solar power setting the sun on oil (I am so sorry), you can’t blame oil magnates for looking for the next thing to tie their wealth to. What’s interesting is that the lesson they appear to have learned is the importance of hard-to-reproduce commodities. They fell into the first, now they are actively looking for the second.

You know what’s hard to reproduce? Status. Prestige. History. Identity networks. You know what characterizes those exact things? Sports teams and luxury brands. I fully expect oil money to keep pouring into soccer teams and handbags. Watches and sports cars. The kind of products that are grown and historically selected for across multiple generations, in processes that often take more than a century. Production processes that are less engineering than social geology.

Petro states and families have been tied to oil for 100 years, but now they want out. And we should let them, encourage them even. The fewer forces there are in the world working to continue fossil fuel dependence, the better. The more they tie themselves to products where labor holds more leverage than capital i.e. sports, the better. If you’re waiting for fossil fuel money, or human rights abusers, to get their come-uppance, prepare yourself for disappointment. But if you’re excited to the see a better world with cleaner air and a better climate future, then don’t be surprised if it’s first harbinger isn’t solar farms in Texas, but princes in stadium press boxes sponsored by Rolex.

Perhaps the reason there is so much curiousity and handwringing over monopsony in economics these days is that tenure-track researchers themselves are employed within an extremely monopsonistic market:

Let’s take the findings at face value, and say that all faculty at the various stages of tenured and tenure-track academic appointments work within a monopsonistic market. Let’s also accept that it is reducing not just wages, but total compensation inclusive of all benefits and compensating wage differentials. What’s the solution?

I mean, so much of the monopsony literature circles back to the policies and industrial institutions that researchers, wonks, and advocates think will improve worker welfare. Well, if *we*, the researchers in question are so confident in our findings, our models, and our policy recommendations, what have we done to improve our own market? Have we done anything? Can we do anything?

I heard someone in the back yell “We unionized!” Okay, that’s great. I just I could say “More unions” and end the post, but I’m not confident that this is a problem that unionization, absent additional innovation, is going to solve. Don’t worry, I have an idea.

Release sheets. I’ll explain.

At the moment, the majority of academics opearate under administrative regimes that think the best way to keep faculty costs down is leverage employee exit costs to the absolute hilt. That means, more than anything else, that the only way to get a non-trivial raise is to have a formal letter offering you a job at another university, with a start date, salary, and benefits all enumerated. Only then will the department/college/university consider offering you a “retention” raise. The administration’s hope is the the cost of pursuing an outside offer combined with the cost of moving to a new area (“local” outside options are almost non-existent in academia) will deter you from pursuing them, reducing the probability of receiving one.

The problem with this tactic is that it discourages faculty from contributing, participating, and investing in all of the public goods that make a department and university successful. Every investment ties the researcher to the school and community, raising their exit costs and, in turn, lowering their expected probability of pursuing and receiving an outside offer. Contributing to public goods reduces expected future wages. “Retention raises only” insititutions undermine the mission of their own faculty by incentivizing their faculty to be as independent, aloof, and myopically selfish as possible.

Now, the obvious solution here for universities is to simply preempt the market by raising salaries to better match their market value, but that would require both having a clear and unified vision of what their product and mission are (good luck) and not giving in to the overwhelming temptation to capture rents on labor wherever they can (fat chance). If there is one unifying attribute of bad managers everywhere, its conflating rent maximizing with profit maximizing. Yes, I know there is definitional overlap, but we’ve all known a manager that confuse percentage returns for absolutes, acting as if paying $3 for $5 of marginal labor product is better than paying $8 for $11.

If you want faculty to contribute to public goods, you’re going to have to give them something as compensation for their higher exit costs. I suggest exchanging reduced asymmetric information for enduring higher exit costs. How? The two-part release sheet.

The idea is actually pretty straight forward. Part one: every employee contract includes a release sheet that includes a retention ceiling that the university promises it will not make a retaining offer in excess of. If you have a retention ceiling at $200k a year, then another school can come and offer that with absolute confidence that they will have a real shot at landing the employee. This encourages rival schools to make the investment in scouting and recruitment. It lowers the cost of making offers that will raise someones income. More offers, more raises, less rents.

Part two: the merit raise ladder. Between the employee’s current salary and their retention ceiling is a schedule of merit raises. At each step of the ladder, the department evaluates the employee’s revealed productivity since their last evaluation and decides whether to give a raise. The tartgeted amount of the raise is pre-determined. If the employee receives an amount less than the pre-determined full target raise amount, the difference is subtracted from their retention ceiling. Let’s go through an example:

Contract A: $150k/ year. 6 year contract. $10k raises at years 2 and 4. Retention ceiling: $225k/year.

That means that after year 2, the department can give a raise. If they raise their salary by $7k a year (total 157k), then their retention ceiling is lowered (7-10 = -3) to $222k. After 6 years the two parties have the option to renegotiate the whole package. If both parties can’t agree, then they simply project the old schedule forward, $10k every two years, differences lowering the retention ceiling. If salaries are frozen it’s entirely possible for the retention ceiling to drop below their actual salary.

I see a lot of benefits here, and not just for faculty. Everyone benefits from reduced assymetric information. A high retention ceiling doesn’t actually bind anyone’s hands – a rival university can still show up with any offer they like, the current employer simply retains the right to make an equal or higher retaining offer. Failure to keep up with employee market value, however, will quickly result in the vultures circling your best employees. At the same time, employees have greater incentive to continue contributing in every possible way to the department, and not just those that are visible on the outside. Departments will know that they have to keep salaries commensurate with total productivity or they will forfeit their right to make competitive retention offers.

We already have a central hub in academic economics: the AEA-JOE. We post job openings and vitaes on the JOE, we coordinate letters of references. Posting our retention ceilings alongside our vitaes would be a nearly costless addition.

Would their be other consequences? Almost without question. This is a blog post not a theory paper. But if we’re going to complain about monopsonistic markets, we should probably consider taking steps to fix our own.