The End of the MBA as We Know It?

Abstract

The article presents a study that examined the usefulness of MBA programs in business schools. The salaries and rates of return for recent business school graduates suggest that the MBA has not, in fact, outlived its usefulness. An issue casting doubt on the rate of return on the MBA is that the degree represents a signal to potential employers, but may not increase an employee's productivity. Some have argued that the increase in earnings derives not only from human capital investment, but also from pure differences in personal ability. The increased earnings of people with MBA degrees could be partly attributed to innate differences in abilities and not to schooling. The expected rate of return for an MBA, while still high, has recently declined. New graduates with MBA degrees are reporting fewer jobs upon graduation than their predecessors. Given the sluggish economy, a few more bleak years may be in store for MBA holders. On the bright side, the economic slowdown has lowered the opportunity cost of an MBA: Wages and opportunities outside of business school are not as enticing as during a robust economy. Furthermore, interest costs for borrowing to finance the MBA are at historic lows.

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