On Master's Programs in Economics

With the large demand for graduate education in economics by Chinese students, many economics departments have recently established terminal master’s programs in economics, or are seriously considering doing so. (A terminal master’s program is one that is separate from the PhD program and typically does not lead to a PhD in the same department.) I was Director of the Master of Applied Economics (MAE) Program at the University of Michigan from July 2010 to December 2012, so I wanted to share some thoughts about master’s programs in economics.

The University of Michigan Master of Applied Economics Program. The MAE program at the University of Michigan was well-established long before I arrived as an assistant professor at the University of Michigan in 1987. The composition of the student body has shifted over the years, but the basic nature of the program has not. Our MAE program is very flexible. The formal requirements can be found on the MAE website, but a surprisingly close approximation to the requirements is that there are 5 semester core courses, and then an additional 6 courses that in practice can be almost anything suitably advanced. (There is no master’s thesis in our MAE program.) Students greatly value this flexibility. Here are some examples of different categories of students in our MAE program:

  1. Mid-career government officials who come to increase their knowledge of economics and their skills before returning to government service.  For example, in 2012 we admitted employees of the Central Banks of Japan, Korea, Turkey, Mexico, and Chile, and employees of other government agencies in Afghanistan, Pakistan, Kazakhstan, Korea, Japan, Singapore, Indonesia, Thailand, and China.
  2. Dual-degree students in other programs at the University of Michigan who realize the value of learning more economics.  For example, in 2012 we had dual degree students who were also pursuing a degree in Public Policy, Financial Engineering, MBA and PhD from the Ross Business School, Kinesiology, Urban Planning, Natural Resources, Psychology, Statistics, Education, Health Services Organization and Policy, Industrial and Operations Engineering.
  3. Students who have recently received a bachelor’s degree who hope to prepare for a career in government service, including service in international organizations such as the World Bank and the IMF.
  4. Students who have recently received a bachelor’s degree who hope to prepare for a career in finance.
  5.  Students who tried and failed to get into a Ph.D. program who need a way to further their economics training while they figure out what to do next in their lives if their plan of getting a Ph.D. looks impossible.
  6. Students who belatedly realized their interest in economics and want to switch into economics from another discipline.
  7. Students with a wide range of other objectives.  Here is a list drawn from admittees this year: (a) more analytical rigor to further a business career, (b) understand economics better after having been an economic reporter, (c) get a job in a think tank, as a consultant, as an economic analyst, or in an NGO, (d) understand the art market better, and (e) have a better chance of success as an entrepreneur or running a company.

Most students can easily complete the program in 3 semesters, though a large minority choose to stay 4 semesters, given the attractions of being in our program and being in Ann Arbor. The 5 core courses are all specially designed for the MAE students. They are:

  • Math for Economists
  • Microeconomics
  • Macroeconomics
  • 2 Semesters of Econometrics

For their other 6 courses, MAE students fan out to a wide variety of courses. With a few exceptions, the number of MAE students in any one course they take as an elective is so few that they can easily be accommodated. These electives are all classes that would exist even if we didn’t have an MAE program. For example, MAE students take many advanced undergraduate economics classes. Our advanced undergraduate classes are at the right level for most MAE students, given how rigorous our undergraduate program is. But MAE students also take many classes from other departments and schools within the university: math classes, statistics classes, public policy classes and business school classes. (The University of Michigan has modest transfers between units to compensate units for doing part of the education having students from other schools in their classes. These are sufficient that other units don’t mind having our MAE students in their classes.)

Preparation for PhD Programs? One of my biggest surprises when I became the Director of our MAE program was learning how small our role is in preparing students for PhD programs. As the examples I gave above, the bulk of our students had other goals. Indeed, the modal goal was to do something much like an MBA, but with less networking and more economic rigor. For those students who did want to go on to a PhD program, I had to tell them that our MAE program had no special magic in that regard. Noah Smith and I give our advice about getting into economics PhD programs in “The Complete Guide to Getting into an Economics PhD Program.” But getting a master’s degree is not a key component of that advice. I would be interested in the placement results of other master’s programs into PhD programs, but I felt lucky when we had a handful of our MAE graduates accepted into PhD programs. (Some PhD programs give a preference to graduates of their department’s master’s program. Michigan’s PhD program does not. So I am talking primarily about admission to the PhD programs of other universities.)

Resource Cost: What this means is that the incremental faculty resources needed to keep our MAE program going are only the equivalent of fielding 6 classes: the 5 core classes, plus 1 course worth of administrative time on the part of the Director. In addition, there is a staff coordinator (who has some other non-MAE duties in the department as well). Our MAE program also spends a few hundred dollars a year on parties. (My main innovations as Director of the program were aimed at fully integrating the MAE students into our department socially and making sure they interacted with one another socially as well.) That is about it.

I wish we had more resources devoted to career counseling for MAE students. I think the extra resources that would be needed are quite reasonable in magnitude. There have been discussions in our department about doing exactly that. Also, we have had discussions about adding one elective specifically for MAE students directed at research.

Demand for Master’s Programs: I was amazed at the quality of the applicants to our MAE program. And it isn’t just the grades and test scores. The essays are heartfelt and impressive as well. Of the students we admitted, about 1 in 3 came to our program the first year I did admissions, and almost 1 in 2 came to our program the last year I did admissions. The overwhelming bulk of our applicants (75% or so) were from China. Yet we had no problem in filling out our MAE classes with good students even back in the days when China did not yet believe in students getting an education in Neoclassical economics. So the demand of students for an education in our MAE program far exceeds the number of slots we have. If we were a regular business, we would expand much more than we have. But elite universities remain elite by restricting the supply of spaces in their programs. And the elite reputation of a university spills over from one department to the next. So we are not allowed to expand our program beyond a target of about 50 students in each entering class. I suspect some other economics departments face similar constraints. To the extent existing master’s programs do not expand to meet the demand, it makes sense for additional departments to set up master’s programs.

Conclusion: My main piece of advice to economics departments thinking of setting up a terminal master’s program in economics is to consider the University of Michigan’s low-overhead model of running its MAE program. This is not just a matter of money. Staffing requires also finding faculty who meet our high standards. So programs that rely on larger increments of faculty time are likely to run into staffing headaches that go beyond just needing to pay the salaries.