Is the MBA Going Away?

According to the Wall Street Journal, the Thunderbird School of Management is having to sell itself to a for-profit operator after applications tumbled.  The Journal is presenting this as an example of the decline-and-fall of the MBA, but I’m not sure that’s actually what’s happening.  The Journal calls Thunderbird a top-ranked program, but my recollection from the MBA application process is that Thunderbird was pretty far down there in the rankings, though they did have an international specialization that was attractive to some students.  

The Thunderbird story seems like an example of the increasingly variable returns to education.  An MBA from a third ranked school is usually a good way to rack up a lot of debt without substantially improving your employment prospects.  And it’s possible that potential students are beginning to wake up to those dangers, just as they did with law school.  There are a lot of unnecessary MBA programs and law schools out there, created by colleges who viewed them as an easy cash cow–the courses are cheap to teach, requiring only a professor and some whiteboards, but starry-eyed students could and did borrow six-figure sums to get what they thought was a sterling credential that would guarantee them a good job.  

But that doesn’t mean that the MBA is losing its value–when I returned to Chicago in October 2011 for my 10th business-school reunion, I saw no signs that Booth graduates were having any trouble finding high-paying jobs.  Indeed, a top-tier MBA may be more valuable than ever.  Just as in the broader economy, the top is pulling away from the rest.    

The problem is that third-tier schools had been issuing a lot of degrees, charging tuition that only made sense if you were going to get a Harvard-caliber job.  And those jobs aren’t available to the graduates of a small regional program.  I’m not saying that those people aren’t good enough for those jobs, or don’t deserve them, but the reality is that the companies offering those glamorous-sounding, high-paying jobs in tech or consulting or finance only recruit at a handful of schools.  This was true even when I was in school.  But when unemployment was low, it wasn’t so obvious to folks considering an MBA from the University of Louisville.  Now it is.

In the summer of 2012 when I wrote a piece on whether there was a higher education bubble, my focus was on college.  But it is the graduate schools that the collapse has begun.  That doesn’t mean that graduate education will go away (after all, neither tulip bulbs nor stock exchanges went away when those bubbles collapsed); rather, the market will get dramatically smaller, with the shakiest programs going bust, others retrenching, and the top ones continuing to draw more students than they can enroll. If it spreads to college, we should expect to see the same pattern: top tier schools surviving and even thriving, while lesser ranked schools pitched into financial crises by declining enrollment.  

Overall, I think that’s a good thing; over the last decade or so, a lot of students ended up spending a lot of money on degrees that did them no good.  If prospective students are wising up to the risks, that’s great.  But it’s a bit hard on the professors who abandoned the private sector for tenured positions at institutions that may shortly cease to exist.  And what do we tell the students who can no longer pin their hopes on more education?

36 thoughts on “Is the MBA Going Away?

    • Selection bias! Bravo!

      Especially since selection bias (coupled with law school administrators’ utter corruption) was behind the multi-decade deception previously known as “placement survey results”

  1. An MBA from a third ranked school is usually a good way to rack up a lot of debt without substantially improving your employment prospects.

    Improving? I’d argue a third ranked MBA substantially reduces your prospects.

    • Point of order: can we please differentiate between a third ranked school (Wharton, I believe) and a third tier school? It’s confusing to the novice reader.

  2. So what is the cutoff for programs that are worth it?

    The top 3, Harvard/Stanford/Wharton, obviously are.

    I assume schools that trade the 4th-10ish spots are too: MIT, Chicago, Northwestern, Duke, Berkeley, Columbia, Dartmouth, NYU.

    But then what? After that, you have the top public schools, UVA/Mich/UNC/UCLA/TX and the other elite private schools, CMU/Yale/Emory/WashU/Gtown. Are those worth it?

    How about 26-50 where you pick up the other decent state schools, the Ohio States, the Indianas, the Floridas, the USCs, the AZUs, the Wisconsins?

    I ask because 1-10 are pipe dreams to most. But 11-25 and 26-50 are possibilities to many more. I never know how far to take the “don’t do a non-elite MBA” advice.

  3. Also a grad of the U of C GSB. Agree with 2nd comment that reunions are self selecting.

    The real value of the MBA is one third each: content; credentialing/gatekeeping; and networking.

    Amazed at number of successful MBAs from lower ranked schools who will only hire grads from top tier schools.

    • Perhaps the successful MBAs from lower tier schools are playing the odds: sure *they* managed to succeed, but there were 99 Blutarskys in their class.

    • Whenever the topic is MBA programs, I remember a column back in the 1980s that showed the decline of American industry corresponded nicely to the rise in MBA graduates. While correlation doesn’t prove causation, the column’s assertion was that too many MBAs have a short term perspective (next quarter profits) instead of taking a longer view.

      In his book, “Skunk Works”, the late Ben Rich talked about when he decided to go to Harvard Business School (HBS). His boss, the legendary Kelly Johnson, tried to talk him out of it. When Rich returned to work, he presented Johnson with a sign that read, “2/3 HBS = BS”.

    • Is there MBA content that has actual value?

      I’m not even really being snarky, it’s just that the alleged content has never been well-explained to me, and plenty of MBA holders seem to have not learned anything particularly useful about, well, Business Administration.

      (Many of them don’t seem to be able to administrate half as well as their un-credentialed office managers.

      I’m also dubious about the networking, for Real Work; what benefit does knowing other MBA-holders from School A actually provide in terms of Actually Doing Real Business?)

  4. Re: The 11-24. WashU undergrad Business degree. Regional pull. If you want to work in St. Louis or Chicago, great. Otherwise, no credit. So I would only recommend if you want to be hired in the region where those schools are located and have developed ties with local employers.

  5. I had a friend who recently completed an MBA from a “mid-tier” school. He was an engineer (Aeronatical) by trade. I asked him if the MBA was “worth it”. He responded that since his company paid for almost all of it there was no real cost to getting one other than the time invested. But he added that it did almost nothing to advance his career. The jobs which would require a degree at his company were almost non-existent and you could get them by working your way up the ladder anyway. Even as an “augment” degree, an MBA seems largely useless as if you only have that (and let’s say a degree in business) most companies will not hire you. You need some type of practical skillset or knowledge, or at least a good deal of experience to get one.

    The difference between a J.D. and an MBA is that the States/Country regulates law practice heavily. You NEED to go an accrediated law school and NEED to pass the bar exam (believe it or not, in years past you didn’t need a law degree to take/pass the bar. You could simply read books, pass the bar exam, and start practicing law in most States). However, you don’t need an MBA to start a business, work for a business, etc. That’s why there are so many degree mills out for them.

    The biggest benefit from an MBA education at a top tier school really isn’t the MBA itself per se but rather the CONNECTIONS you can make among those at top tier schools, including getting your foot in the door at certain companies.

    Overall, I don’t believe MBAs are worth it to the vast majority of the population. It’s just another way schools try to swindle you out for an overpaid, oversold degree. If you do go for one, make sure you have a decent, marketable agree in the first place or plenty of industry experience.

    • So, how did that come about, anyway? I’d think that if you could pass the bar, you could become a lawyer. I’m sure the law schools lobbied heavily to make themselves a gatekeeper, was there simply no lobby on the other side?

    • dacushing, that’s pretty much what I’ve concluded. It was simply the law schools who didn’t want “the masses” to become legally practicing without them paying their dues of tens of thousands of dollars.

      There was probably no lobby because those would be in favor of it had no money to begin with (because they were in favor of a cheap education). And to add even more hilarity to it all, they’d need to hire LAWYERS to lobby for them which, since most of them would’ve gone to law school, probably weren’t too keen on defending people who would say you didn’t need a formal law education to do what they were doing.

  6. So, how about that Great Wall of Texas piece in The Atlantic? That was really something, huh

    • You owe me a beer. I’m going to be scrubbing my brain for weeks after wading through that. Your idea of entertainment and my idea of entertainment are pretty different.

    • It’s been 24 hours, and I just can’t get over how a couple of academics including a dean at an Ivy would go out and publish something that would get an F in 9th grade history. They really don’t care how absurdly wrong the things they write are if it advances their cause. Krugman’s right about Hubbard.

  7. What is saving a lot of medium and lower tier business schools now is increased enrollment from foreign (mostly from China) students. They’re more likely to get an MS rather than MBA, since most Master of Science programs in business don’t require a lot of work experience. I don’t know where the students get the money.

    Traditionally (i.e. for the last few decades), many people used MBAs to change careers, because they’d chosen a career where they peaked early and didn’t have any where else to go unless they went into management. Examples are nursing and engineering. And as someone else pointed out, often the employer will pay, for those that aren’t looking for a major shift. Still, as MBAs became more common, I always thought that the schools would run out of fresh supply eventually.

    The growth rate, both in terms of positions and pay, won’t be as high as it has been in business schools, but it’s not as if all the positions will disappear. At most universities, the business school faculty will just teach more undergrads. For someone getting a college degree, I’d still argue that accounting or finance is at least as useful as art history.

    • Foreign students seem to be keeping my college alive too; mainly China but also lots of rich kids from South America and India.

    • They get the money from their parents who are either people who made it in land development, own a factory, or more likely are government officials.

      Because in China, any degree from overseas seems very prestigious, any old diploma will work. This is especially true for kids who really are not top tier students but Dad has money.

      Thus you meet graduates of US schools in Asia who cannot write English or speak it. These often go to special schools that cater to Asians and are essentially fakes. Others pay people to write their papers etc.

      Of course some of them do actually learn and are fine.

      There’s a show in China where people apply for jobs from tycoons, and the huge amount of people with masters degrees from overseas is amazing. Sometimes they can speak English (one of the bosses is a foreigner who talks to them.) Sometimes its embarrassing

      I personally have interviewed MBAs from low=low tier American schools and Aussie schools who seemed like they did not really grasp English.

      Credentials are huge in Asia.. Most bosses don’t actually know that CSU Stanislaus is different from the UC system.

    • @Coba: ran into a number of Chinese students at Northwestern (minimum TOEFL score to be admitted: 640) who couldn’t understand English well enough to grasp “this is not your classroom. This is a different class”

      They’re faking an enormous amount of credentials on both sides of the pacific.

    • Speaking of faking credentials, did you read about the recent riot in Hubei because students weren’t allowed to cheat? Students and their parents attacked the teachers. I saw a quote from one parent, outraged that a teacher had taken his son’s cell phone which had been hidden in his underwear.

  8. It sounds like their main problem is that they are offering the wrong product – full time 2 year MBA’s. I suspect a lot of people are unwilling to take the income hit of quitting their jobs and dedicating 2 years to schooling when they can take a part-time night or weekend MBA or executive MBA or other program.

    Plus, a lot of part-time MBA’s are paid for by employers. If you can get someone else to pay for all or part of it, while still working, it’s a lot more appealing. It becomes a “well, even if it doesn’t help me, it probably won’t hurt me” decision. It also serves as a pretty good signal to management that you are looking to move up.

  9. “but there were 99 Blutarskys in their class.”
    That would be “Senator Blutarsky” to you, Sam.

  10. Look for business schools to start offering more targeted degrees (Master of Health Administration; Master of Technology Management; Governmental Affairs Administration, etc.) and more one year certificate programs (human resources professional certificate; team management certificate; public audit certificate).

    Also, Megan might be overly focused on MBA programs that specialize in Finance, OB and Strategy. Business programs (especially those schools with undergraduate programs) can’t pump out accountants fast enough and operations management degrees actually teach useful skills. Engineers who want to move into management should definitely look into ops.

    [OT: The lobby behind making law schools the exclusive path to practicing law was the ABA, which is always in favor of restricting entry into the profession.]

  11. That this is happening at law and business schools is a pretty sure sign that it will happen at undergraduate schools next. Law and business school is what you do when you find out that your undergraduate major in Communications Studies wasn’t worth squat. When people figure out that there isn’t a Plan B to save worthless BAs, they will think twice about those BAs.

    • This seems about right. Let’s say you really are smart but you got a degree in polisci and employers are gunshy about hiring you. An MBA suddenly makes you seem much more marketable.

  12. This is the inevitable consequence of the near-worship of education as a mechanism of egalitarianism. Wealth is advantage, and that which is a benefit to everyone is an advantage to no one.

  13. The general worthlessness of a “third tier” degree has been common knowledge for years and years in law (long enough that I remember the delusion that a JD – any JD – was a secure path to a lifetime of middle class affluence and respectability being referred to as “the LA Law effect”).

    I wondered why the MBA, which seemed rather more inherently useless than a JD given all the state licensing and whatnot, wasn’t widely thought of the same way. Guess it just took people longer to notice

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