4/04/2008

MBA Grads in the Recession

This article conveys that MBAs and business undergrads who graduate during an economic downturn have much lower lifetime earnings, sometimes by millions of dollars. A Citigroup spokeswoman said their offers were down 10 to 15%. One study showed that for every percentage-point increase in the unemployment rate at graduation, there was a 7% to 8% initial wage loss. This loss is multiplied when the grad's annual raise comes around and there's not as much to multiply. Different industries are also more apt to hire than others during economic downturns, and so a grad's entire career path may have to be shifted. So how should grads combat the sagging market? The article suggests that students should stay in school until the economy picks up again, arguing that it may hurt in the short run, but it will pay off in the long run. I'm not so sure on that. Although it's always great to be learning, if you aren't going to use additional advanced degrees, it doesn't seem worth it to go in debt for it. I think we'll have to just take the economy as it is and try to make money with a degree instead of slowing down school and continuing a part-time, low-wage college job.

6 comments:

Avery said...

I agree with you, Matthew. It's just not feasible for most of us to stay in school, especially if you're already finishing your advanced degree. I can understand how once you get into a job that starts out with 7-8% wage loss that you may never make that up over the years with annual raises. However, most people change jobs and even careers multiple times in a lifetime. It seems the key would be to change when the country is not in a recession and see if you can gain back that loss in pay.

Lily said...

I don't think staying in school is necessarily the best answer either Avery. Declining businesses need good people with expertise to help them out of a recession. A recession weeds out inefficiencies in the market, at the same time it also always for great business opportunities. Attack the job market. Look for opportunities to make a difference. Don't be an inefficiency. Then when we are in a bull market, be adamant about your raise. If it is not what you expect then find another way to make a difference.

Dr. Tufte said...

Sorry folks. This is a pretty hot area of research right now, and your reasons have already been worked into the analysis. After accounting for these, you are still better off staying in school for a year or two to avoid coming out in a recession.

Joe said...
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Joe said...

I have not read any peer reviewed articles on this subject but as a graduate student I have done a lot of "testing the waters" and I have to agree with Dr. Tufte.

The exception to making more to waiting would be the person who continues to go to school decides to pursue a less profitable field. For example, if an MBA student from SUU decided to continue his education but wants to be a music teacher instead of a businessman (assuming he is not a really bad businessman).

Robert Breault is a professor of music at the University of Utah, with a PhD and has been there since 1992--he makes $63,000 a year. I mention him because he is an example of having a high income in the field of voice teaching, has a PhD, he is near the pinnacle of his academic career, and yet an MBA student (who is willing to move) would not be far behind him after a few years of experience.

Strictly speaking in terms of income, continuing our education but doing so in a less profitable field would seem to be the exception. But of course the article all ready alludes to this, so if you are going to switch careers—do so wisely.

Dr. Tufte said...

Agreed.

But ... for others ... what I was driving at is that your lifetime salary and promotion profile is tied more tightly than most people guess to the salary and position that you start out with. It's tough to plan, but the people who hit the job market at the peak of the bubble in 2007, and are able to keep those jobs, will have higher lifetime earnings than people who started a year earlier or later.