MBAs and the economy
Ports in a storm
Aug 7th 2008 | SAN FRANCISCO
From The Economist print edition
Business-school applications pick up as the
economy slows
ANYONE wanting further proof that the world economy is in trouble need
look no further than the nearest business school. Many schools are hailing
a bumper year for their full-time Master of Business Administration (MBA)
programmes, which are popular with executives looking to hone their
moneymaking skills while sitting out a downturn. Worryingly for those
betting on a swift economic recovery, business schools reckon that next
year could yield an even bigger crop of applicants.
During the previous downswing the
percentage of full-time MBA
programmes reporting higher
applications soared as tech stars
switched to textbooks (see chart). The
pace slowed as the economy improved,
but then picked up again. Preliminary
figures from the Graduate Management
Admission Council (GMAC), an
international organisation of business
schools, show that 77% of full-time
programmes have reported higher
demand for places this year.
Admittedly, the state of the economy is not the only factor driving demand
for MBAs. Students from India, China and eastern Europe have swelled
the ranks of applicants. But the business cycle still has an important
influence. The biggest cost of undertaking an MBA is often the earnings
forgone while studying. In difficult times those earnings may fall or even
disappear, reducing the opportunity cost of taking a year out.
This helps to explain why demand for places is up this year, even as
falling house prices make people feel poorer and the credit crunch makes
student loans pricier. "Several months ago we were nervous about the
impact of the financial crisis, but it does not seem to have been a major
impediment," says Mark Mallinger, associate dean of full-time
programmes at Graziadio School of Business at Pepperdine University in
California, which has seen a 30% rise in applications. Others reporting
double-digit increases include the London Business School and the Stern
School of Business at New York University.
"We're predicting a very strong applications market through 2010," says
David Wilson, the chief executive of GMAC. Registrations for its Graduate
Management Admission Test are forecast to exceed 249,000 this year, an
all-time high. Scores on the test, which 1,800 business schools require,
are valid for five years. Of course, there is no guarantee that students
who embark on MBAs now will be able to walk into their ideal jobs when
they emerge clutching their new degrees. But they may stand a better
chance of doing so than this year's graduates, who must grapple at first
hand with the practical implications of the macroeconomic theory they
learnt in class.