<p>Harvard followed the concepts pioneered by Yale of investing their money in non-traditional, illiquid investments. The investments were valued each year and a lot of compensation was paid based on the appreciation. Now much of that compensation turns out to have been, shall we say, poorly designed because it encouraged more risk into less liquid assets. Harvard has to lay off people because their endowment doesn’t generate enough cash.</p>
<p>Balancing the budget by laying off working class people–aren’t liberal academics wonderful?</p>
<p>There is a great deal of fat and inefficiency in the administrative side of Harvard. People do not want to harm the educational mission of the institution and are prepared to cut some of the fat. I suspect that some other educational institutions will have similar situations.</p>
<p>In contrast, at Beth Israel Hospital, one of Harvard’s major teaching hospitals, the CEO organized a “town meeting” for suggestions to avoid cutting folks at the lower end of the income distribution and employees took pay cuts and doctors (who are not employees but independent contractors) actually gave money back. That is partly because the hospital had cut out much of the fat already and employees knew that – unlike Arts & Sciences at Harvard, where the professors know how much fat there probably is to cut.</p>
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<p>I suspect that it was your job, you might feel differently.</p>
<p>It is never nice to see someone fired or laid off. I know and like someone who was laid off at Harvard and feel badly about it. I was just trying to explain that it isn’t merely liberal professorial hypocrisy as EMM1 implied but rather a sober assessment of what needed to be cut to maintain the educational mission and why I suspect the same people would see cuts differently if the fat had already been cut.</p>
<p>I think more cuts are on the way. Hedge Funds and Private Equity Funds that these guys are heavily invested in are still not permitting withdrawals which has got to mean that they are in awfully bad shape. Universities that continue to borrow to meet expenses are the most vulnerable and will need to make the biggest cuts.</p>
<p>Harvard has the capacity to borrow. They have a gazillion assets and plenty of endowment. They’re choosing to cut, meaning they’re choosing to inflict personal pain rather than suck up the financial loss.</p>
<p>Harvard has accumulated more than 6 billion dollars in debt. I think their capacity is drying up pretty fast.</p>
<p>Banks and bond issuers don’t look kindly on non-profits who won’t try cost-cutting, internal trimming first before trying to borrow or re-capitalize. How would you like your spouse to apply for another credit card before cutting discretionary spending?</p>
<p>^If she was still sitting on $20 billion? It would be fine by me.</p>
<p>275 out of 16,000 employees?</p>
<p>less than 2% of staff getting laid off</p>
<p>by objective standards not that big a hit</p>
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<p>I get the financial point, but on a purely micro level, 99% of employed people really wouldn’t consider their job to be just “discretionary spending.”</p>
<p>"…the cuts were split almost evenly between administrative or professional positions and clerical or technical jobs. Service and trade workers will be largely unaffected.'</p>
<p>Not sure what the definition of “working class people” is…may not include some of the administrative, professional or technical people laid off.</p>
<p>What interests me is that even with a 30% drop in the endowment, Harvard is still sitting on an endowment that others could only HOPE to reach decades from now. Why the big panic?!</p>
<p>ellemenope, Harvard’s Arts & Sciences relied on the endowment for more than 50% of its operating income (I think the number is in excess of 60%). So, a 30% drop in the endowment with an even bigger drop in income (among other things, the private equity funds are not making distributions at the moment or if they are not large like they used to be in the golden days) means a big drop in what they were counting on to cover operating expenses. However, it is pretty clear that the school has built up a costly, inefficient bureaucracy – it seemed pretty difficult to get fired from administrative jobs despite relatively weak effort in some cases – and there is room to cut (perhaps much more than 275 jobs) and still achieve the institution’s mission.</p>
<p>I think Harvard and other schools have other problems as well. There is no forced retirement age for professors. As professors’ retirement savings have been decimated, they decide to stay longer than they would have. Productivity may be lower than at earlier ages, but more importantly, they cannot attract the next batch of young professors whose research will keep the school strong.</p>
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<p>Not only that, but Harvard money managers have invested heavily in very illiquid assets. So for the most part they couldn’t spend down the endowment to make up the income shortfall even if they wanted to. Hence, big budget crunch and layoffs.</p>
<p>Funny to think that just a year and a half ago we were worrying about [The</a> dangerous wealth of the Ivy League - BusinessWeek.com- msnbc.com](<a href=“http://www.msnbc.msn.com/id/22043995/]The”>http://www.msnbc.msn.com/id/22043995/) and Harvard’s 5.7 billion dollar gains in investments…</p>
<p>A couple of observations:</p>
<p>Shawbridge is right about the graying of academia, and not only at Harvard. I gather that Harvard could have offered golden parachutes to its senior faculty some years ago at the same time as Berkeley, but it actually made retirement unattractive to most. I think it had to do with health insurance.
Shawbridge is right, too, about the bloated administration. There’s been a plethora of deans, each with his or her staff.
Harvard does still have an enviable endowment but having larger payout means less money to invest and thus less money to make good on the lost income. Harvard also borrowed heavily under Larry Summers, and interest on these loans is what is causing the difficulties.<br>
Harvard could probably address its deficit by rescinding its extremely generous finaid, keeping it for families making less than $80k. I was told, however, that it was the Corporation that had pushed to extend it to families with income of up to $180k, and since it’s the Corporation that decides on the payout, this finaid program is not about to be cut back.
There’s been a salary freeze that affects faculty and administrators. Unionized staff, however, will continue to enjoy the 4% per year increase that was negotiated last year. Unless, of course, Harvard tries to renegotiate this deal.</p>
<p>Ugh, the graying is so terrible. I’m in a Ph.D program now and a lot of my colleagues are graduating and can’t find jobs because the ‘retirement boom’ that was predicted to have happened by now has NOT happened, and professors are staying on way past retirement age (and keeping their appointments even when they are not doing any research or teaching more than one class) because they have tenure. That, added to the recession, has caused many many universities to go on hiring freezes. A lot of my friends are getting post-doctoral positions now that barely pay more than our graduate stipends because there are very few professorships to be had.</p>
<p>Sorry about that mini-rant – on the more rational side, I understand that universities are businesses, and when businesses run out of money they have to fire people and not hire anyone sometimes.</p>
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<p>It turned out to be VERY dangerous wealth, indeed…</p>