Several studies and statistic show that MBA graduates earn, on average, significantly higher wages than non-MBAs. These results remained consistent even after the financial meltdown.
Some labor market experts also affirm that most recruiters, faced with a tie between two candidates who offer a comparable value for a job, will pick someone with an MBA instead of someone with just a BBA. Nobody can deny that the network MBA graduates develop at business school is a highly valuable, life-long asset, and the general vision of business one gets at business school is very nice to have.
This convincing data, plus the fact that many brilliant people in their twenties are really seduced by getting an MBA degree from prestigious business schools, may lead us to think that MBA degrees are a very good investment.
Unfortunately, not all that glitters is gold.
How to Analyze an Education Investment
An education investment should be analysed in the same way as any other investment: in contrast with its alternatives. So let’s see what the alternatives are to any of the apparently exclusive benefits of a top MBA degree:
Incremental Income
- The MBA wage statistics show correlation between MBA degrees and higher salaries. But that does NOT mean the MBA is the cause of that higher income. Some statistics may show that Ferrari owners have a higher income than non-Ferrari owners, but it is obvious that their Ferrari was not the cause of their wealth. Most MBA graduates were admitted at business school because they could already prove they had what it takes to succeed. Driven professionals with interesting professional experience usually earn higher salaries, even if they do not go to business school. For most of them, going to business school would have had the same career and salary outputs as not going, as some studies already prove. Correlation is not equal to causality. Are there many successful professionals without MBAs in your industry? If there are, there is a high probability that the MBA has an insignificant impact on careers in your field. So the MBA investment, compared to its alternative, would be ruinous in most cases.
- In some cases, an MBA applicant may expect an income increase due to pursuing an MBA degree. If that is the case for you, you should consider in your analysis that you would not have had a static career if you did not pursue an MBA. You would have had raises according to your incremental professional experience, and you should consider the differential income increase only.
- Taxes are higher for higher incomes, so make sure you understand how tax brackets work. To analyze properly the Return On Investment (ROI) of an MBA, you should identify the tax bracket for your expected level of income and subtract that percentage from the equation. You should also consider the value of money over time and the risk of not fulfilling your expectations, and calculate the Net Present Value (NPV) of your investment.
- The word “average” is tricky, because statistics are usually a poor reference to establish a cause-consequence rapport. Most MBA graduates with lower salaries are reticent to answer the surveys, as they are not proud of their income, while MBA graduates with the highest income are often selling their souls to the devil in 100-hour-week, depressing jobs at a poor hourly rate. I recommend digging deeper into the MBA wages statistics before making a conclusion.
Employability Improvement
A top MBA degree in someone’s resume will always look really good. Most employers will value the degree and, faced with a tie between two candidates for a job, they will always pick the MBA guy. But ties between candidates are very rare.
Most often, there is one candidate who has the most-valued skills an employer is looking for: usually specific professional experience or rare and demanded skills such as languages or technology knowledge. This candidate will beat all the rest, even top MBAs.
So the alternative to an MBA, which is an extremely expensive tie-breaking joker you might never need, could be to identify the “winning cards” in your industry and get those for much less.
Networking
The MBA network is an amazing, life-long asset of connections with high-potential, brilliant people. But this does not mean that an MBA is the only way to build such an amazing network to boost your career.
Only a fraction of the most successful and interesting people in the business world hold an MBA, and even those who have the degree can be reached through social networks or mastering social skills. Amazing and interesting people just like you are everywhere and are open to connect with other amazing people, whether or not they hold golden credentials.
In the 21st century, there are much more cost-effective ways to connect with people than the pedigree.
Business Training
An MBA provides a global and general vision of how big, established businesses work. That’s very nice knowledge to have, but an MBA is not a cost-effective way to earn it. The world has changed a lot in the last decades, and what is really valued in today’s business environment is the knowledge strategically oriented to add specific value or solve specific problems. So look for that knowledge first; the alternative to get the rest is reading some $20 well-written books.
While MBA tuition has increased dramatically in recent years, the differential added value of these kinds of degrees has sunk. Many people enrol in these onerous programs without analysing their decision properly. That is how bubbles are formed. Make sure you are not investing in a bubble before taking the plunge.
About the author: Mariana Zanetti earned her MBA degree from one of Europe’s top business schools and has over twelve years of international marketing experience working for global companies such as Shell and Saint Gobain in three countries. She is the author of The MBA Bubble.
