Throughout the United States, several stories have emerged about politicians and organizations interested in ending the institution of tenure in higher education. In Florida, steps have been taken to review the work of tenured faculty. In Texas, Lieutenant Governor Dan Patrick has articulated a desire to do the same.

But it’s not just politicians. Emporia State University recently submitted a plan to restructure which would allow the firing of all employees, including tenured professors, with 30 days notice.

Even states with no direct legislative opposition to tenure, like California, have seen a decline in the density of tenured professors.

Data by the American Association of University professors indicates a decline in tenure track professors in percentage terms over the last few decades, though it is important to note that part of the decline is caused by the rise of community and for-profit colleges.

Nonetheless, it appears that tenure as an institution is, to say the least, under scrutiny. The question is, why? But in order to understand a possible deterioration of tenure, it’s necessary to understand why tenure exists in the first place.

No Profit, More Problems

Tenure has always been a controversial system, and it’s easy to understand why. The trope of the lazy professor who can’t be fired is by no means unbelievable. This is the central argument that critics launch against the system of tenure. If professors have more job security, they’ll be less accountable to expectations.

On the other hand proponents often argue that tenure is necessary because it protects academic freedom. Without tenure, some claim that those with unpopular research agendas and findings will be fired.

While this argument for tenure may sound like a good argument for why there should be tenure, it’s an unconvincing argument for explaining why there is tenure.

Instead, economist Armen Alchian in a piece titled “Private Property and the Relative Cost of Tenure” (1977) offered a convincing argument for why tenure evolved for purely economic reasons.

Alchian starts with the observation that universities are almost always non-profit organizations. This is true of both public and private universities.

In for-profit business, when managers choose to punish or fire a productive employee for arbitrary reasons unrelated to productivity (such as discrimination, political disagreements, or personal antipathy), the company will take a hit to their bottom line. Firing a great worker due to personal disagreements means you’ll have to spend money to replace that worker, if you can find a replacement at all.

Managers who exercise their firing power arbitrarily like this won’t be around for long. Either owners will recognize this particular manager is costing them money, or competitors who don’t fire employees arbitrarily will be able to drive them out of business due to lower costs.

In a for-profit business, losses caused by such behavior will be unacceptable, because owners have the ability to take their money out of the business and redirect it to other uses. Business assets will be liquidated and money will go elsewhere. Thus, in a for-profit context, there is an incentive to avoid arbitrary firings.

The same is not true in the non-profit sector. As Alchian points out:

“[i]n a non-profit-seeking enterprise, the administrator must spend all the income in the business for salaries, materials, building, etc.”

The nature of a non-profit is there is no owner who is able to take their money out and redirect it to better uses.

Without an owner with this ability, there is less incentive to push an organization to be as efficient as possible from a pecuniary perspective. Instead, those within the organization will have more discretion to use resources in unproductive ways. In Alchian’s words, an administrator’s employment policies:

“[w]ill be less closely related to productivity in a pecuniary sense and more oriented towards satisfying his own welfare through non-pecuniary forms, e.g., employees who agree with his point of view, or employee cultural characteristics, or special employment arrangements which are conducive to administrative ease.”

Put differently, the managers do not suffer as much when they make arbitrary firing decisions in a non-profit context, and that makes them more likely to do so.

How can employees protect themselves against an administrator with arbitrary power caused by the non-profit structure of the business? They can demand more job security through tenure.

Is Alchian right? His argument here is a partial explanation, and in other places he emphasizes the specific investments professors make, but it seems like to some extent the non-profit explanation rings true.

Research by finance professor Willian Brown Jr shows that data indicate exactly what Alchian’s theory would predict—tenure is more common in non-profit universities than in for-profit universities.

Why the Change?

The end of tenure is by no means a foregone conclusion. The cases above may just be minor exceptions. But if this is the beginning of a permanent change to the tenure system, why?

Again, Alchian’s theory can provide us clarity. If it’s true that tenure stems at least in part from an administrators’ ability to fire arbitrarily, then any decline in this ability would mean the value of tenure as an institution has fallen.

There are a few reasons why it’s believable that administrators have lost some arbitrary firing power.

First, increased scrutiny of personal bias in hiring and firing decisions may be the cause. If employees are more likely to challenge arbitrary firing decisions (legally or otherwise), these decisions will become more costly.

As our culture becomes more concerned with discriminatory firing practices, it would make sense for the necessity of tenure to decline.

Second, administrators may be losing arbitrary firing power because of more homogeneous, standardized requirements for faculty. In theory, it’s difficult for administrators to measure how “good” a faculty member’s research work is. But with the advent of ranking systems for peer reviewed journals based on accurately recorded citation counts, research quality is (in theory) more easily measurable.

When performance is easily measurable, it’s difficult to justify firing a clearly productive researcher for arbitrary reasons. Again, this decreases the likelihood of arbitrary firing and therefore diminishes the importance of tenure.

Lastly, it’s possible that administrators have been more successful in exercising arbitrary bias in hiring decisions. If an administrator can rule out all candidates they dislike personally in the interview process, there is no need to arbitrarily fire them. Again, this would mean the utility of tenure has fallen. With personal and professional information being more easily accessible than ever, this last theory is certainly a possibility.

This last theory is also the most intriguing. If true, administrators are still able to exercise arbitrary power, and the system of tenure no longer prevents them. In fact, if it’s the case that administrators can now exercise bias in hiring better than ever, the system of tenure actually would serve to reinforce arbitrary administrator preferences.

This would make the actions of Texas and Florida politicians more understandable. If tenure works against its initial social function, the desire to change it makes sense.

Incentives Change

So if time is up on tenure, is that a good thing? It’s difficult to say. Ultimately, if Alchian is right, the change may simply be the result of a changing world.

In either case, the important lesson to take from this is that the outcomes of contractual arrangements (such as tenure) are driven by the incentives which surround the position.

In other words, the “best contract” is contingent upon the structure of the job. If incentives change and make tenure less necessary for secure employment, it should really be no surprise if institutions abandon it.

As an academic, I personally like the idea of tenure for the same reason that you, dear reader, like higher wages. But I also acknowledge the best solution depends upon the problem at hand.

As the incentives change, our systems will change with them. Even tenure is not forever.

This piece was originally published on FEE.org under the title, Is Tenure Really Dying? And Would That Be Good or Bad?