Considering Graduate School in Economics?
Some Unofficial Advice From
Bill Craighead, Miami University (PhD, University of Virginia, 2006). 
April 2007.

This is just my opinion, based on personal experience. In making an important decision like this you should seek advice from as many sources as you can.

Fundamentally, the decision to go to graduate school is a career decision. As Harry Callahan would say, "you've got to ask yourself a question": will this graduate degree allow me to get a job that I want? Unlike college, graduate school in economics has very little value as a consumption good. If you are expecting a continuation of your college experience, you will be painfully disappointed (and probably leave after the first year, if not sooner).

Since it's a career decision, my advice starts with careers in economics, and works backwards though the job market, what you do in graduate school, paying for it, choosing a program, applying and preparing, with some other stuff at the end.

Careers in Economics: Roughly 1000 Economics PhDs are awarded in the US and Canada every year[1]. The majority of graduates wind up in academic jobs (i.e. as college professors). Colleges and universities expect their professors to teach and do research which will lead to papers in academic journals. There is considerable variation in the relative priority assigned to teaching and research. Universities with PhD programs tend to care almost exclusively about research, while liberal arts colleges emphasize teaching and expect less research. In general, research is the main source of prestige and career advancement within the field. Being a good teacher can generate considerable personal satisfaction, but it will almost never help you get a higher-paying job.

Unlike many other disciplines, there are some non-academic opportunities for economists, primarily with consulting firms and government agencies[2]. There are more of these opportunities in applied microeconomics fields than macroeconomics. Some - but not all - of the government agencies encourage their economists to continue working on their own research, which helps them keep their career options open. Most economic consulting firms work primarily on anti-trust issues, providing expert testimony on behalf of firms seeking approval for mergers (and facing off against economists from the Federal Trade Commission and Department of Justice).

The Economics Job Market: Unlike many academic disciplines, PhDs in Economics generally find jobs in their field, mostly on the first try. The process for finding a job is semi-organized: the American Economic Association (AEA) publishes Job Openings for Economists (affectionately known as "the Joe"). Graduate students who are in the later stages of their dissertation research carefully scrutinize the October and November issues for jobs in their fields of specialization. The customary approach is to apply for a large proportion of the jobs in your field - its common to apply for 100-150 jobs. The most important part of the job application is a "job market paper" - a piece of research (usually a portion of your dissertation) to provide evidence of your potential to be "productive" (i.e. generate publications).

If you're doing well, and it's a good year (the market can be somewhat cyclical), this will lead to 20-30 interviews at "the meetings" of the Allied Social Science Associations (the AEA and some smaller, related groups), the weekend after New Year's. From the candidates they interview at the meetings, the employers choose a few for a "fly out" - a visit to the school (or agency or firm), where you'll present your research in a seminar, meet the economists and make a lot of small talk (and if it's a liberal arts college, meet with students). The process is grueling, but it does at least have some structure, and it usually works out for most people.

One big downside: although economists can get jobs, since it's a thin market, most people don't end up with a lot of choices about where they go. You have to be flexible and if you have strong preferences about working in a specific location or type of institution, you're likely to be disappointed.

What Graduate Students Do: Economics Ph.D. programs are trying to train students to become productive researchers, not to teach them about the economy ("teach a man to fish..."). The first year of a PhD program is an intense set of core courses in math for economists, statistics/econometrics, microeconomics and macroeconomics. Its all about developing skills - there is a huge gap between the standard undergraduate curriculum and the techniques used in contemporary economic research. The first year of grad school tries to bridge that gap. Don't expect to have much of a life (or get enough sleep). At the end of the first year there is around of preliminary exams. Generally, most programs award a MA degree after the first year, and many people take this as a consolation prize and skedaddle.

The second year is more coursework, but mostly in your chosen fields of specialization. This is where you can start thinking seriously about topics you're interested in doing research on, and finding faculty members to advise your dissertation. Usually there's another round of examinations after second year.

After that, everything completely changes - the word "student" is deceptive when applied to grad students beyond the second year, because you're no longer taking classes. Suddenly, you're expected to do some research and write a dissertation; the amount of guidance and support you'll get in this task varies depending on the culture of the department and especially on your dissertation advisor(s). Very often grad students find themselves feeling somewhat adrift at this stage; you may decide its a good time to polish your Mario Kart skills and catch up on the sleep you missed first year.

The reason economic research is hard is that you have to find something that will add to our understanding of economics that nobody has ever done before. And then figure out how to do it. There are lots of people out there doing research - and when you think you've got a good idea, you'll often find that someone else already had it 10 years ago. The smartest people are not always the most successful at this stage - some of the people who seemed like geniuses in the first year will drift away, while some of the people who struggled at first will come up with really good ideas. A little bit of self-discipline and stick-tuitiveness goes a long way as you deal with the inevitable frustrations and setbacks of the research process. Usually, this takes several years - technically, a PhD can be completed in 4 years, but this never happens. Five to seven total years is more typical.

How to Pay For It: Its free! As a student of economics, though, it occurs to you that there's a significant opportunity cost to giving up 6 years of your life. However, graduate programs do generally waive tuition and provide some funding to their students. For a large university, graduate students are a source of cheap labor to do the dirty work of grading, and teaching. You'll probably get thrown in to the role of teaching assistant (leading weekly section meetings for a large lecture class) with no training, and they may turn you loose to teach your own class. Some teaching experience can be beneficial - the learning by doing process is painful, but it works - though its important not to let your teaching get in the way of your dissertation research. The really good programs will protect you from having to do too much teaching.

Many programs offer funding packages on a rolling basis - the schools start with their top prospects and, as they decide to go elsewhere, work their way down the list until the deadline (usually around April 15). Its generally not considered a good idea to go to a program that doesn't offer you funding.  If you're aiming for the commanding heights (MIT, Stanford, etc...) you may want to look into applying for an NSF fellowship.

How to Choose a Program: Economics is a small, idiosyncratic world, so rankings are of limited value. Everyone talks about the "top ten" and "top thirty" etc..., but there's no common agreement on what those are. Although people's interests often evolve considerably while in graduate school, it helps to have some idea of what fields you're interested in. The top programs will generally have good faculty members in all areas. Lower down the pecking order, you can find departments that are more focused on particular areas of strength - for example Michigan State is known for strong econometrics, UC-Davis has great international economists.

The most important thing to look at is a program's job placements - would you be happy in the jobs that the graduates from this program tend to get? Another good thing to look at is a department's list of their current job candidates: you can get some idea about what topics and dissertation advisors are popular in practice (sometimes a school will have a famous person who turns out to be useless as an advisor, so you need to look beyond the faculty roster). There are lots of idiosyncrasies, so its important to ask around - talk to professors (once we start talking about this topic, we're hard to stop), and when you're getting down to final decisions, its definitely worth it to visit the program and talk to the graduate students. As an example, here are Virginia's job placements and current job candidates (usually updated in the fall).

Applying: Admissions is somewhat unpredictable. It's a good strategy to apply to a range of schools: take a few long shots (getting rejected will give you some peace of mind later - I don't stay awake at night wondering whether I should have applied to Berkeley because I did (sigh)), but have a few backups, too. Some of us actually ended up at one of our "backup" schools. The admissions committees will be primarily concerned about your math background (both quantity and grades) and your math GRE scores - you need to be around at least 750 to be in the game at most top- and second-tier programs. Deadlines tend to be in December, January and sometimes February.

Preparing: Math. The most important thing in admissions is your math background (more than economics itself - I suspect most econ PhD programs would love physics and engineering majors). You should definitely have multivariable calculus and linear algebra. Statistics (that is, real statistics from the math department), real analysis and differential equations help too. You're not really going to use all of it - though it really befuddles you at first, you'll eventually realize that a large part of the math in economics involves taking a derivative, setting it equal to zero and doing a bunch of algebra. Nonetheless, a strong math background - not just the classes, but good grades in them - is vitally important as a signaling device to convince programs that you'll be able to handle the rigors of the first year.

Other Stuff:

What about a Masters Degree? You don't need a masters degree to enter a PhD program. They'll give you one if you survive the first year, and you have to start at the beginning even if you already have an MA. Since the first year is generally considered the worst part, going to a PhD program just to get a MA is a bad idea. A few places (such as Miami) offer terminal MA programs, which can have some benefit in improving your application to (and readiness for) a PhD.

What you're really looking for is a good public policy program: Some economics PhDs end up working in policy jobs, and many econ undergraduates are motivated by interest in policy issues. However, PhD programs are fundamentally research-oriented and there are much easier ways to get a job in Washington. If public policy is your interest, you might look into a masters degree in public policy. For example, William and Mary's.

Can I transfer? Sort of, but not really. Its very rare to start a program and move up to a better one. Some of my classmates did leave for other programs but the moves were lateral, not upwards, and they had to start over. So if you aren't happy with the programs you've been accepted to, its better to try to improve your credentials by taking some more math classes (or getting a terminal MA) and try again next year.

Can I change my major? No.

Does work experience help? No. Not directly, at least. I think I gained some sense of perspective from my experience outside of the academic world, and about half of my classmates had worked a few years before starting graduate school. But the "real world" doesn't add anything to your application and doesn't really prepare you for the academic world. A possible exception would be a job working for a PhD economist - e.g. as a research assistant at the Federal Reserve, or as an underling at an economics consulting firm.

Will I be the only American? Probably not. Economics graduate school can be an interesting cultural experience. About 70% of econ grad students come from outside the US. The number one undergraduate source of future econ PhD's is Seoul National University[3] (nobody can say economics is Seoul-less!). In many cases, foreign students have superior mathematical preparation, since many foreign education systems are more focused than the US "liberal education" model (which is unfortunate for them, but it does mean they may be more ready for grad school). However, in the long run, I think it's a bit of an edge on the job market to be a native English speaker.

Will I be the only woman? Probably not. Although economics used to be male-dominated, this has changed significantly. Currently about one-third of econ grad students are female. The Committee on the Status of Women in the Economics Profession tracks our progress in this area.

Will I be the only minority? It may depend on how you define "minority." The Committee on the Status of Minority Groups in the Economics Profession works on this issue.

How economists are like professional athletes: The market for big shot researchers has some characteristics of a "superstar" labor market. There is considerable faculty turnover at research universities, because the top faculty members are free agents who can be lured away by other schools looking to move up the food chain. The hazard for graduate students is that the person you hoped would be your advisor may be gone by the time you get to the dissertation stage. This happened to me: I arrived at Virginia just as the top macroeconomist and international economist were decamping for Boston University, and one of my favorite professors later left for the Federal Reserve Board. A couple of my classmates decided to go elsewhere, but I stuck around and the university managed to hire some new people, one of whom became my advisor. Unfortunately, there's no certain way to avoid this risk. If you have a potential advisor in mind when you're deciding where to go, it would be a good idea to ask about her/him when you visit, so you'll be aware if its known they're likely to leave (for the most part, economists are surprisingly open and honest about stuff like this - academics don't need to be secretive the way people in "real jobs" often do).

I know you're too polite to ask: There is considerable variance in starting salaries for PhD economists. At the low end, some colleges start in the neighborhood of $50,000 per year. The top end of the salary range for new PhDs is rumored to be around $125,000 these days and I would guess the median is $80,000-ish. You'll be paid more than a high school teacher, but not as much as a lawyer. Of course, as intellectuals, we don't really care about money anyway. Ahem.

If You Go:
Buy this book: Fundamental Methods of Mathematical Economics by Alpha C. Chiang (McGraw-Hill). Math snobs may say its too basic, but my advice is: don't leave home without it.

A very important secret: #2B lead for your mechanical pencil. Its softer, so it leaves a darker mark on the paper with less effort. (I learned this from a classmate who was a physics undergrad - those scientists really are smart!)

Some resources:
Mankiw's advice for aspiring economists; for grad students
Econphd.net (lots of tips and some rankings, though I much prefer US News' rankings)
R. Amir and M. Knauff "Ranking Economics Departments Worldwide on the Basis of PhD Placement (pdf)"
The JOE website has a couple of articles on time-to-degree and attrition in Econ PhD Programs
David Colander, "The Making of an Economist Redux" Journal of Economic Perspectives 19:1 (Winter, 2005).  An examination of graduate economics based on surveys of and interviews with grad students (though the study focuses on 7 top schools, most of the conclusions apply more broadly).  The book of the same title includes more details on the surveys and interview transcripts.  For another viewpoint, see Daniel Hamermesh's review of the book in the Journal of Economic Literature (46:2, June 2008).
Piled Higher and Deeper, a comic strip chronicle of graduate student life.

A personal note: I'm glad you've made it this far, because that means you haven't been scared off by what I've said above. As students of economics know, expectations matter - and my goal in writing this is to help students make an informed decision about what they-re getting into. Despite all of the downsides enumerated above, I have absolutely no regrets about my own decision to go to graduate school in economics. I met some great people there and had some amusing experiences. Being a college professor is not quite as cushy as it seems from the outside - mostly because the tenure system does put some pressure on us to crank out publications - but it's a pretty nice job overall. Though it won't make you rich, you can live comfortably, with fairly good job security, people will think you're smart, and you have a great deal more freedom and autonomy than most other jobs. And, once you're a professor you can actually take some time to learn about the economy.

 [revised Aug. 2008]

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[1] An annual list of doctoral dissertations is published in the December issue of the Journal of Economic Literature.

[2] Of 2914 openings in Job Openings for Economists in 2007, 1910 were for academic positions. Of the 586 non-academic employers advertising in the JOE, 124 were categorized as government, 94 as banking or finance, 57 as business or industry and 239 as consulting or research. John J. Siegfried (2008) "Report of the Director, Job Openings for Economists," American Economic Review, 98:2.

[3] Harvard is #2, followed by National Taiwan University and University of Delhi. John J. Siegfried and Wendy A. Stock (2007), "The Undergraduate Origins of PhD Economists," Journal of Economic Education 38:4.