Do professors' wages depend on students' earnings?

Survey data indicate that the average salary of full professors in the U.S. and the average starting salary of new college graduates in the U.S. have both grown over each of the past eight years. The positive association between these survey data is intuitively appealing in that if greater demand for education comes as a consequence of higher annual earnings accruing to individuals with more education, then an increase in the starting salaries of new college graduates should lead to an increase in the wages of college and university faculty. This paper is the first to study whether the demand for professors is derived from the demand for higher education. To do so, we model the interactions between the academic labour market and the market for college and university graduates, and we show that, in equilibrium, academic wages are independent of students' earnings. This main characteristic of the equilibrium conditions of our formal model is supported by empirical analysis.