The MBA's Value? Debatable
Posted by: Louis Lavelle on January 13, 2012
A recent headline on Poets & Quants posed the question “MBA Still Worth It?” It then supplied the answer: “Absolutely, Say Alums.” If only it were that simple.
The P&Q story is about the latest research from the Graduate Management Admission Council, which surveyed 4,135 business school alumni who received their degrees since 2000. The GMAC report paints a rosy picture of the MBA’s value, more or less what you’d expect from the publisher of the GMAT exam, which gives the organization a vested interest in drumming up b-school applications. But to say the GMAC survey is definitive proof that the degree is worth it—keeping in mind that “it” at some top schools is a tuition and forgone salary bill well in excess of $300,000—well, that’s a bit of a stretch. Consider the following:
Job Status: According to GMAC, 86 percent of the MBAs from the Class of 2011 who answered the survey were employed after graduation. This is actually worse than the Class of 2010 (88 percent) and represents an unemployment rate of 14 percent—nearly triple the 5 percent unemployment rate for college graduates reported recently by Georgetown University’s Center on Education and the Workforce. It’s worth noting that the 86 percent of 2011 grads who were employed included 12 percent who went back to work for their pre-MBA employer—not exactly a ringing endorsement for a degree that bills itself as a stepping stone to a new career. And remember this is a survey that may have a self-selection problem: who’s more likely to answer a survey about their job status, the employed or the unemployed?
Job Requirements: GMAC reports that three out of four Class of 2011 alumni with jobs report they could not have obtained those jobs without their graduate management degree. All that really proves is that MBAs aren't applying for jobs as burger flippers--is that really proof of anything?
The Jobs Themselves: The GMAC survey found that the Class of 2011 went mostly (69 percent) into mid-level positions, with 21 percent taking entry-level jobs, 8 percent taking senior-level positions, and 1 percent taking executive spots. This is considerably worse than just a year ago, when entry-level positions accounted for only 17 percent of the total, 14 percent of the class went into senior-level positions, and 3 percent landed executive spots.
Return on Investment: When it comes to the "value" of the MBA, what people are talking about, mostly, is money. Dave Wilson, the GMAC president and CEO, says in a statement that the survey results "demonstrate that a graduate management degree is, in fact, a solid investment in your future, both in good and bad economic times." But that's far from certain.
The average salary for full-time MBAs in the Class of 2011 - those that actually had jobs - was $79,806, a year-over-year decline of $4,533 or 5.4 percent (and that doesn't include inflation). GMAC also calculated a return on investment and deemed it "stellar." Alumni recouped one-third of their b-school investment within a year of graduation, 100 percent four years out, and doubled their money after 10 years. But those figures are based on the estimates by survey respondents--not a detailed calculation of the actual costs and financial benefits of the degree. That back-of-the-envelope calculation could be on the money, or it could be way off (if, for example, survey respondents didn't include forgone salary in the cost of the degree). We just don't know. Even if it is accurate, what of it? Doubling your money after 10 years is a bit less than you can expect from any halfway-decent investment earning 8 percent a year--and unlike most other investments, an MBA is highly illiquid--once you pay for it, you're stuck with it.
Business school students want to believe they're making a wise investment in their futures by plunking down a fortune on a degree, and for many of them that might be true, particularly at top schools where the ROI calculus is more favorable. But the numbers sure don't bear that out for everybody. Optimism is deeply engrained in the b-school mindset, but in this case it's the worst kind of optimism: misplaced.
