Is An MBA Worth It?

A paper by Wayne Grove and Andrew Hussey on the Returns to MBA Concentrations [PDF]:

We offer the first estimates of the financial returns to MBAs’ choice of the area of concentration, controlling for the non-random selection of students into fields with a wealth of individual-level variables, as well as using fixed effects to control for time-invariant unobserved ability. Our evidence suggests that those who specialized in finance and MIS earned wage premiums of 13 and 15 percent, respectively. These results are relative to comparable individuals without an MBA or an MBA with no specific concentration, based on a rich set of individual variables, namely demographic, the prior industry of employment, educational background, multiple aptitude measures, and MBA program quality and type variables.

In contrast to the fixation on attending elite programs, our Fixed Effects estimates indicate that the total returns to concentrating in finance or MIS at a non-top 25 programs were 69 and 79 percent, respectively, of the wage premium earned by general management students from top 10 MBA programs. We find little evidence of difference between men and women, except that women with MIS concentrations earned much more. For African-Americans, there is a zero (or even negative) overall wage effect of a general MBA degree, but very high earnings premiums in certain fields, such as finance and marketing. Our results are robust to a variety of specification checks.

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One of the principal policy implications of our findings relates to rising MBA-related indebtedness of students (Anderson, 2006, 4) in light of the existing literature regarding the return on investment in graduate management education. Although we do not formally estimate predicted lifetime economic returns to an MBA, our results certainly suggest caution in incurring debt to obtain an MBA for strictly financial considerations since, on average, students in non top-10 MBA programs and those concentrating in accounting, marketing, international business and those in the catch-all “other” category (besides management, finance, and MIS) did not earned significantly higher salaries.

For anyone in the DC area, Wayne Grove will be presenting his paper at GMU in Fairfax this Wednesday at 4 PM in Carrow Hall.

I'd love to see a study like this done for law schools as well. How much of a financial advantage does an elite education (top 10 school) really gain you financially? What other metrics would be important to measure to evaluate this? Variety of working locations? Percent employed in legal careers 3-months after graduation? Bar passage rates? What about for PhD programs? It's puzzling that so many people spend so much time and money on education without clear answers to these questions.

One thing that is clear is that if you really want to get ahead, engineering is a good way to go.