MBA Pay is Up! Maybe

Posted by: Louis Lavelle on February 11, 2011

The Graduate Management Admission Council, the owners of the GMAT, released a survey of MBA and other graduate b-school alumni yesterday that showed overall pay now tops $94,500, well above the pre-recession level of $89,000 in 2007. It also showed that the percentage of employed alumni is up on a year-over-year basis. Good news for MBAs, right?

Well, GMAC thinks it is. But a closer look reveals a mixed bag.

First, let’s take a look at how GMAC did this study. The survey covered alumni who received their degrees between 2000 and 2010, and who participated in previous GMAC studies. The survey was conducted in September 2010 and there were 3,490 responses.

I’m not a statistician, but it seems to me that the methodology has a few shortcomings. First, it has a built-in bias toward wage growth. Instead of holding everything constant (the number of responses for each graduation year, the number of responses from each industry) the end result is determined by the individuals who happen to answer the survey. As GMAC readily admits, if a lot of people from the early years answer, their higher wages will skew the average salary higher. (Fifty-eight percent of respondents to the September survey got their degrees in 2008 or earlier.) Ditto if a lot of people with high-paying consulting or financial services jobs happen to answer. (About a third of the respondents came from those industries.)

What's more, individuals who might skew the average salary downward aren't even included. The self-employed and entrepreneurs, who make up 7.2 percent of the sample, and the unemployed, who make up 6.9 percent of the respondents, aren't considered when calculating the average. Both groups typically have very low salaries, or no salaries at all. GMAC notes that this is fairly standard in salary surveys.

Next, let's look at the findings themselves. The pay growth GMAC reported since 2007 amounts to about 6.2 percent. That doesn't sound too bad until you take a look at inflation. Starting with the average salary of $89,000 that GMAC reported in 2007, keeping pace with inflation would have required folks with graduate business degrees to average $95,277 in 2010. They didn't. They're falling behind. (The respondents came from all parts of the world, and I used U.S. inflation rates, so this is really a back-of-the-envelope calculation.)

Finally, let's take a look at those employment numbers. At first blush, they don't look too bad either. As GMAC reports, 93 percent of the 3,490 alumni who responded to the survey were employed, up from 90 percent in 2009. But as a group, the respondents still aren't where they were in 2007, when 95 percent reported having a job. They're also not that much better off than the general population, where unemployment is now 9 percent vs. 7 percent for the MBAs.

Even that slight difference might disappear when one considers the likelihood that unemployed MBAs will answer a GMAC survey about their employment status and pay. GMAC disagrees, but I suspect many unemployed MBAs didn't answer the survey, and the actual MBA unemployment rate is a lot closer to, or even higher than, 9 percent.

Michelle Sparkman-Renz, director of research communications for GMAC, concedes that the salary and employment data are subject to fluctuations in response rates from different graduation cohorts and industries. But she believes the GMAC numbers are generally reflective of the pay and employment status of alumni.

"Salary is more than one number," she told me. "I'm definitely aware that our survey every year reports from a different sample. There are a kaleidoscope of things that determine salary: choice of industry, organizational focus, different job levels, years of work experience. All of these things can determine earnings. I feel very positive about it."

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