Conventional MBA Wisdom

Posted by: Louis Lavelle on June 9, 2008

If past is prologue, then there are probably a lot of people out there who are giving serious consideration to applying to MBA programs in the fall right now, for one reason and one reason only: the economy. Applications to business school are, in fact, a counter-cyclical phenomenon—they grow when the economy isn’t. In fact, the most recent numbers from GMAC suggest that prospective MBA students have been expecting the economy to tank for quite a while now. Since bottoming out two years ago, GMAT testing volume is up about 27%.
But is taking on an MBA program during a sluggish economy really a smart move?

Those who espouse the conventional wisdom point out that the opportunity costs of an MBA in a slow economy are less--especially if you're unemployed, or your take-home pay depends in large part on big year-end bonuses that might not materialize during a recession. And regardless of opportunity costs, an MBA will increase your earning power in future years, so there's really no bad time to get the degree. True enough.

But what about the herd factor? With so many people applying to b-school I suspect the selective schools become super-selective, so a lot of folks who are aiming for Wharton may have to settle for less. And two years later, when you're graduating in a larger-than-average class, with your not-quite-Wharton degree, getting the job of your dreams may not be that easy. For starters, if the downturn lasts more than a couple of quarters, employers will either scale back on the number of interns they hire, or the number they make job offers to at the end of the summer. If the downturn lasts much longer than that, you'll be graduating into downturn.

This particular economic downturn makes these kinds of calculations all the more risky. Not only don't we know if we're in a recession....for all we know it may already be over. The credit crunch, the housing crisis, oil prices, inflation--there are too many moving parts in this mess to know exactly how it will play out. People applying to MBA programs in order to ride out the tough times, may instead find themselves graduating into an economy that's worse off than it was two years earlier--or sitting on the sidelines and riding out the recovery instead.

I always wondered if it made a lot more sense to apply to MBA programs when the economy is booming--it may cost you a bit more, but it would make it (a little) easier to get into a top program and (a little) easier to land the dream job. Is anybody actually doing that?
How are people approaching the whole decision to enter an MBA program during a downturn?

Reader Comments

Yuva

June 10, 2008 5:47 AM

Is their any data to prove this? Is it easy to find dream job now for all those who joined couple of year ago when economy was good.!
I remember folks passing out 2001 had horrible time finding any good(not dream) job.
Its important for economy to be in better shape in passing-out year then in joining year. If that's assumed to be given then too:
a) I didn't see average GMAT score or average experience or any other admission indicator moving toward any one direction that great deal between so-called good years and bad years. so logic of getting into wharton in good times but not available to in bad times doesn't always hold true.
b) if someone manage to get-in Wharton then s/he seems to the gainer since opportunity cost is low (or lowest possible).
c) if I remember correctly, recently BW articles argue degree in tier-2 or tier-1 doesn’t make big different in long career. So its already better do something now then something later or nothing.

Louis Lavelle

June 10, 2008 8:44 AM

Actually there's some evidence to at least suggest that what I'm saying is possible. According to the latest GMAC recruiter survey, expected starting salaries for MBA grads in 2008 are way up, despite the credit crunch, housing crisis, oil prices, etc. These are MBAs who entered business school during a hot economy and graduated during a poor one. Now that's just one data point, so I'm reluctant to read too much into it, but it is kind of interesting.
As for my Wharton comments, I hear what you're saying about GMAT scores. But the fact is if Wharton (or any other school) keeps the size of its class constant, then it's going to be harder to get in when you'e one of 1,500 applicants than when you're one of 1,000 applicants--it's simple math. Sure, folks with high GMAT scores and other terrific qualifications will always get in. But folks who are borderline qualified for a top school--and who would have gotten in when there are 1,000 applicants--may be rejected when there are 1,500...simply because there will be a lot more super-qualified applicants.

DY

June 19, 2008 1:30 AM

The decision to apply or not should depend on the applicant. If he / she feels ready for an MBA and has the necessary requirements for the school that he / she wants to get into then they should just apply. There is no point postponing your application just because other people (who may not be so well qualified) are applying because things are bad in the economy.

Most of the applicants according to me (i maybe wrong) who are applying due to bad economic conditions would not be having a well rounded application.

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