Invisible Adjunct has an interesting post on whether the existence of tenure hurts the pay of university professors. He cites James Axtell here:
. . . the relative economic security of tenure also lowers academic salaries from the competitively higher salaries of comparably educated professionals in government and industry. In 1987 the median salary of a Ph.D. in government was 10 percent higher than his academic counterpart, and in the private sector, 24 percent higher. Today , the private/academic differential is 38 percent and growing, as academic salaries struggle to keep up with even modest inflation. If colleges and universities dropped the tenure system for short-term contracts and necessarily competitive salaries, the American price tag for higher education would skyrocket. As it is now, professors pay for tenure out of their own pockets, and not with loose change.
My guess is that, if tenure suddenly ceased to exist, the number of people seeking university teaching positions would remain essentially constant. I don’t think tenure is the appeal of the job, but the so-called life of the mind. Indeed, most Ph.D.s would rather have a three-year contract, with reasonable chance of renewal, at a great school than tenure at a lousy one.
Plus, the government example is actually backwards. Once one gets “in the door” in the federal civil service system, it is virtually impossible to lose one’s job. After three years–not the six or seven normal in the academy–you get “career” status, the equivalent of tenure. So the economic disparity has to be from something else.