MBA bubble updatePosted: December 1, 2011
The NYT on The Dwindling Power of a College Degree (HT: Glen Reynolds). Up to the 1970s, less than 11% of the population graduated from college … and most of those had good jobs. “Today nearly a third have college degrees, and a higher percentage of them graduated from nonelite schools. A bachelor’s degree on its own no longer conveys intelligence and capability.”
This statement requires some refinement. According to the BLS, the median weekly earnings in 2010 for those holding a bachelor’s degree was $1038, versus $626 for those with only a high school diploma. The respective unemployment rates were 5.4% versus 10.3%. Professional degrees, like MBAs, performed even better: median weekly earning of $1,610 and an unemployment rate of 2.4%. On the surface, college still looks like a good deal and an MBA even better.
Unfortunately, these aggregate statistics do not tell the whole story. First, the discrepancy in outcomes for degrees that require math versus those that do not is enormous (e.g., $98k for Math & Computer Science vs. $29k for Counseling Psychology). Second, the statistics do not distinguish between recent versus long-time grads. Last, and most important, they do not account for cost. From 1978 to 2008, the inflation rate for college tuition was 3x that for the general cost of living. At this point, it is not hard to show that, for the low-paying humanities degrees at least, college is now a bad deal.
The analysis in the NYT article is vague but appears to suggest that a weakening of unions and a less progressive income tax schedule are somehow responsible for growing income inequality, a consequence of which is somehow bad employment outcomes for college grads. My own view is that greedy university administrators (lolz) opened the floodgates to anyone who could write them a tuition check and pressured faculty to dumb down the curricula to accommodate them. Add easily available, government subsidized loans and, not too surprisingly, tuition rates exploded. Low quality, high priced education is the result.
As I have suggested here and elsewhere, the trends in MBA education parallel these developments. Today, the content of a typical MBA curriculum has a lot more in common with a Social Work degree than one in Chemical Engineering. Relative to the content delivered, current tuition rates border on the absurd. I believe a market correction is on its way. If and when that happens, and only then, will MBA programs return to taking the notion of a research-based graduate education in business seriously.