MBA: Costs and Benefits. Is the Degree Worth It?

As I sit at my computer at 11:10 PM, after having completed our ECON 6200 "Pre-Built " online assignment for chapter nine,  I wonder if the benefits of an MBA exceed the costs of an MBA.   The benefits, as I see them, are a higher salary,  sense of accomplishment,  and a gateway degree to a doctorate degree in business.  The costs, as I see them, are actual tuition costs and time forgone that I could spend with family or pursuing other interests.  Add to the mix: SUU is not a top-tier business school that  will not command top salaries (see this link for some crazy graduating MBA salaries: Show Me the Money) upon graduation, but still a solid AACSB accredited state university.  

So, is all of the time, effort, and money really going to translate into a higher salary?  The good news is, after doing a little research,  the MBA program appears to be worth the cost, time, and effort. An article in Forbes provides insight into that answer: MBA Pay.  There is only one problem with the article: the data Forbes based their article on came from only the top fifty business schools. Data on non-top fifty business schools is scant, but I did find one good article:  Looking Up.  Do you feel the insights provided by the articles mentioned can generally be transferred to our MBA experience here at SUU? How about for MBA graduates who have come directly from an undergraduate degree into the MBA program without any job experience in between undergraduate and graduate studies? 


Cubbies said...

When I read this I thought about my own journey through School. When I started I was only wanting an Associates in Business; but, after taking my first accounting class I changed my major and became an Accountant. After finishing my MAcc I thought about the MBA program and if it would benefit me in my accounting career. After looking at all of the options I decided it would be a great investment. Once getting the MBA I will have many more options available to me. The MBA will not only benefit me in my own practice, it will also give me an advantage when in comes to consulting clients. I will be better equipped to guide them in the right direction.
I am not to sure not being a major business school is a real draw back with the degree. Once you get out in the real world, where you got your degree is not nearly as important as what you chose to do with it.

Dave Tufte said...

Bronson: 100/100, Cubbies 44/50 (School shouldn't be capitalized, and you mean "choose" not "chose").

Oh boy. I could be labeled as a heretic for what I'm about to write.

The evidence is not very good that MBA's are worth it. They're not a loss, but they seem to be a break even proposition in most cases.

And I'd claim that the sort of articles that Bronson cites (focusing on the top schools, and showing some decent ROI) are biased by the performance of people who take finance focused MBA programs and then take jobs in corporate finance. Take those people out, and you've got break even at the top schools too.

I also think that the "old school" idea of an MBA, that you don't have a business degree, you've worked so many years in production or operations, and you've been bumped up to management and now need to know some accounting and marketing and so on is still a good value added proposition. It's just there's a limited pool of people that applies to, and universities have marketed themselves to the much bigger pool of people who hope that an MBA might do them some good.

And Cubbies point is all good, but the statement at the end about "what you choose to do with it" I think points to the idea that maybe the degree and coursework really isn't the key thing.

Now, having trashed MBA programs, let me say that I think a lot of this could be said about just about any academic program or degree. Lots of people take "worthless" majors and end up just fine, while lots of people take tough majors from good schools and get indifferent results.

In economics, we're used to thinking about education's value being in the signal it sends, rather than in the coursework you complete. A huge part of the value appears to be the signal that you actually started a big project (going to school) and were able to follow through on it and graduate. Maybe MBA's are the same way?

Lastly, from a public policy perspective, this means that legislature's and university's focus on retention and graduation may be wrongheaded. If we make retention and graduation easier for marginal students, perhaps that diminishes the strong signal that a better student is sending. In that sense, the focus on retention and graduation is kind of like a tax on the students who could do it without help.

This is very much like the government's infatuation with getting more people to own homes. Their assumption was that home ownership led to other good outcomes, but perhaps it was the other outcomes that led to the signal of home ownership. And then when the government focused on the signal rather than the causality ... it didn't work out well for the national economy.

Trey said...

I have so much I want to say on this topic but I’ll hold back because it’s mostly opinion. First, I am a huge fan of education and push it on my friends without degrees and their kids who are trying to figure out what to do in life. Secondly, I would assume the vast majority of the people in this class will feel an MBA is worth the money and time (explicit & implicit costs) given their own decision to earn an MBA. Having already spent 4 years in graduate school fulltime, I know the opportunity costs are much larger giving up the salary that could be earned instead. Regardless of how or why someone is getting an MBA, I personally feel it is worth it and most of that worth is not monetary.

Whether your starting salary with an MBA is large or small or whether you start in a position of management & power, the simple fact remains that what you do with your MBA is up to you once you graduate. If you truly understand the concepts you learn and how to apply them in real world situations, the promotions, increased responsibility, and associated money will all come. I believe you’ll look back at your starting salary and/or position and see that it really didn't matter.

I’m speaking from the perspective of someone who has worked almost 15 years with a technical graduate level degree and it has always felt worth it to me. I was always told my graduate degree, like an undergraduate degree, will offer some additional opportunities otherwise not afforded to you but primarily it only gets you a job. You have to take it from there. I think an MBA will bring many of the same intangibles. People with graduate degrees tend to get promoted faster and at younger ages. Where a technical degree limits what industries someone can seek employment, an MBA makes that seem almost limitless. And in today’s very competitive job market I think an MBA is more likely to get you an interview or even a job instead of a higher paying job. And for those of us already working in our profession, an MBA will offer more opportunities to advance within our current company or an opportunity to do something different. And because I feel strongly it is what you do after graduation that matters most, going to SUU is an even smarter decision on a multitude of levels. Here’s a very thorough article from the Washington Post outlining why a graduate degree is worth it

Maybe it’s because I've already been through that “starting salary after graduation” phase, but I never really viewed the payoff of my MBA in monetary means because I know a good or better paycheck will always follow my success.

Dave Tufte said...

Trey: 47/50 (The sentence "Where a technical degree ..." is poorly edited).

I don't disagree with what you wrote. But I'm concerned about what you didn't write.

Most of the studies that find that MBA's are only a breakeven proposition are heavily focused on the opportunity costs: you give up income and advancement now, in exchange for better prospects later.

But evaluating that is all about your discount rate, isn't it? People with low discount rates will think the MBA is a better investment than those with higher discount rates. That's a subjective choice, but there isn't anything wrong with the people who have high discount rates. That's just who they are.

If I go back and filter what you wrote through the lens of discount rates ... it sounds like yours is pretty low. Perhaps that's why you take the positions that you do.

Lyn said...

Education has many benefits, but I believe most of them are non-monetary. As indicated in the other comments, a great benefit of education is the side effects in learning responsibility, dedication, commitment, time management, and other soft skills that need development. Not only are there benefits to an individual but there are benefits to society – more highly educated work force, greater percentage of the population contributing to society, etc. Everyone utilizes his/her education in their individual ways and contributions to society come through application of knowledge. This can come from acting as a responsible business person, making educated consumer decisions, being informed when electing politicians, or teaching important soft skills to children as a parent. Many of these contributions cannot be measured by monetary methods, yet, they are positive benefits associated with gaining an education.

Dave Tufte said...

Lyn: 50/50

I agree that there are important non-monetary benefits to education.

But, I don't think just because they're non-monetary that they can't be measured and quantified. And so far, what has been done with non-monetary measures doesn't show a very strong benefit to education (beyond what is easy to measure).

Eddie said...

I will chime in here because I hope to offer a unique perspective. When starting at SUU, I originally applied for and started just the MAcc program. About a semester and a half into it I realized that I could also get an MBA if I took an additional 5 courses. For someone who was already fully entrenched in "school mode", without a 9-5 job (and its opportunity cost), the decision was a no brainer. I realize that the value of an MBA is different for everyone, largely because of ones unique situation. I agree with Dr Tufte's comment that a great deal of value can be derived by the signal being sent. Some employers have their own biases and won't even consider a candidate without an MBA when the job description calls for one. You could just as easily argue someone with 10+ years of relevant work experience is more "valuable" than an MBA, but that might not get you anywhere. There are some politics involved for sure. I have a friend who works for Boeing who has only completed his undergraduate. He was as valuable an employee as they come, but they "couldn't" (his words to Boeing's stance) promote him without an MBA.

EC said...

I think this is definitely a discussion worth having. I have asked myself many time if the benefits I was obtaining by pursuing an MBA were worth the extra time and money that I had to give up. Professor Tufte made a comment that helped me to make up my mind; "A huge part of the value appears to be the signal that you actually started a big project (going to school) and were able to follow through on it and graduate."

When I decided to take the MBA program at SUU, I had already finished my MAcc. I had a decent job as the controller of a growing company. I spent some time comparing what I would have to spend on the MBA program to potential increases in pay at work. I considered the costs and benefits in a concrete way. I came to realize that the greatest benefit I would gain from pursuing an MBA was a more intangible benefit related to my character. Some of the company's executives recognized that I was going the extra mile to try to improve myself. I am now looking at another promotion at work. I cannot say that my promotion is due to any specific skills that I developed throughout the MBA program. I would attribute it more to the signal that I sent to company executives by making that decision.

I would relate all of this to economics by pointing out that intangible benefits can be some of the most important.

Dave Tufte said...

Eddie: 47/50 (you mean "one's" not "ones")
EC: 47/50 (you mean "times" not "time")

Eddie, that's interesting about Boeing. This is an example where they're using the degree as a filter, in place of doing filtering of their own. I have to assume that the cost-benefit tradeoff of judging their own employees was not good. That's kind of scary, if you think about it. That's like a parent giving a teenager free rein because the high school approves of their conduct. Sheesh.

EC: There actually is a big literature analyzing whether the primary benefit of education is the learning or the signal. Bryan Caplan, an economist at George Mason University, has done a lot of work on this and come out on the signalling side.

As to intangible benefits, I think economists get knocked from both sides. Sometimes people say we focus too much on money. Other times people think we come to weird conclusions by considering things that aren't money. As an economist, I find those positions indicative of defensiveness: economics is useful because we have a set of tools that allow us to look at the tangible and intangible stuff at the same time.

Lacey said...

This is a conversation that I've actually had recently with my sister. She has been taking classes on a part-time basis for more years that she would care to admit and is just now graduating with an associates degree in IT. At this point, she is discouraged and wondering whether completing a bachelors degree is worth it. Her employer pointed out that many having a degree doesn't necessarily make you a better employee as he's had many employees with degrees that were unsatisfactory and others without that were quite valuable. I can't disagree with that statement however my argument is that having a degree provides you with a higher promotional ceiling whether it is in business, IT or any other field. Like it or not, at a certain point, a degree is going to be required when trying to climb the ranks. Also, it makes changing jobs safer. Even if you've had solid work experience, as you get older, much of your competition will have had similar experience. The tie breaker will likely be the degree, and why not have that working in your favor? I see the MBA and education in general as an investment and an insurance policy that may not show immediate gains but will be well worth the effort and money in the long run.

Dave Tufte said...

Lacey: 47/50 (your 4th sentence is rough, but I'm not sure what you meant to say)

Lacey: 11:58 pm is cutting it really close, don't you think?

So what you're saying is that you're firmly in the camp that what is important about a degree is the signal it sends to employers, not what you learned. Fair enough.