Having an MBA no longer guarantees a big salary

By Katherine Yung
Dallas Morning News

It was the educational status symbol of the 1990s, the must-have tool for climbing the corporate ladder.

For years, the MBA seemed like an automatic ticket to a six-figure salary, in many cases a pathway to a new career and a more prosperous life.

But that perception appears to be changing. Demand for master's degrees in business administration is falling for the second year in a row, report several MBA admissions directors across the country. At some business schools, the number of applications has slid as much as 25 percent or more.

Regard for the degree is so low that a FedEx television commercial even mocks it.

"You don't understand. I have an MBA," says Tom, a new employee who is asked to ship some deliveries using FedEx.com.

"Oh. You have an MBA. In that case, I'll have to show you how to do it," his supervisor replies.

"FedEx.com makes shipping so fast and easy even an MBA can do it," chimes in the voice-over narrator.

Three years into an economic recovery creating few jobs, the MBA no longer carries the cachet it used to. Going to business school — even the top ones — no longer leads to three or four job offers. Although corporate recruiting of MBA students has picked up, jobs are still scarce, and many recent graduates are struggling to find work.

When Mark Davidson entered Duke University's Fuqua School of Business in the fall of 1998, he had high expectations about what an MBA would do for him.

"I thought I would be walking with Dorothy and the Tin Man down the Yellow Brick Road," he says. "I thought people would be knocking at my door."

Instead, the 31-year-old is living with his parents in San Diego and doing part-time contracting work in commercial real-estate investment. He has been searching for a permanent job since being laid off 11 months ago from a property management company that didn't have enough work for him.

Going back to school a risk

The grim job outlook has led many potential business school applicants to either give up the idea of earning an MBA or wait until the economy shows further improvement, admissions officials say. Others choose to take night classes while working full time. As a result, business schools are working harder than ever to market their programs.

Last year, a majority of the 289 graduate business school programs reported receiving fewer applications, according to a survey released in July from the Graduate Management Admission Council, a nonprofit organization of graduate business schools. This occurred despite some of the lowest interest rates for student loans in years.

The fall-off in applications appears to be continuing this year, several admissions directors report. At McCombs, the number of applications is down 26 percent. Daniel Garza, director of domestic admissions at the University of Texas — Austin's McCombs School of Business, noted that four other top business schools at state schools had reported an average drop of 33 percent.

Elite private schools aren't immune either. Applications to the Wharton School at the University of Pennsylvania are off 20 percent.

Normally, when the economy turns sour, business schools and other educational programs benefit as people opt to sit out a tough job market by spending time in the classroom.

Yet that logic works in reverse if tough times linger. The longer the economic downturn drags on, the less willing people are to give up the security of their jobs to go back to school, according to the Graduate Management Admission Council.

Applicant pool shrinking

But the tight job market isn't the only factor hurting interest in business schools, admission directors say.

There are fewer 25- to 34-year-olds now — the age range most likely to attend business school — which also plays a role in the drop-off. International students continue to have problems obtaining the visas they need to study in the United States, largely because of security measures put in place after Sept. 11, 2001.

Even so, business schools are not happy with the decline in applications. And they're experimenting with new ways to boost interest in their programs.

Duke University's Fuqua business school plans to start advertising its full-time MBA program because the number of applicants this year has shrunk, says Daniel Nagy, the school's associate dean. That's a change from previous years, when all Fuqua did was hold information sessions about the school and send e-mails to people who took the Graduate Management Admission Test.

The efforts come amid increased scrutiny of the tangible benefits of an MBA. In September 2002, Jeffrey Pfeffer, a professor of organizational behavior at Stanford University's Graduate School of Business, co-wrote a report that criticized the value of graduate business education.

"There is little evidence that mastery of the knowledge acquired in business schools enhances people's careers or that even attaining the MBA credential itself has much effect on graduates' salaries or career attainment," the report stated.

An MBA has little effect on graduates because of the rapid growth in the number of degree holders, the lack of minimum competency standards, grade inflation and the irrelevance of schools' curriculum to what is important for succeeding in business, concluded Pfeffer and Christina Ting Fong, now a professor at the University of Washington Business School.

MBAs have become so ubiquitous that even online universities are offering them. In fact, more than 116,000 master's degrees in business are handed out each year, more than double the number at the start of the 1980s, according to the National Center for Education Statistics.

Graduates praise experience

Business school officials and many MBA students are quick to defend the usefulness of their education.

MBA graduates who entered the workforce during the past several years are largely satisfied with the benefits that their degrees have afforded them, according to surveys by the Graduate Management Admission Council.

At the University of Chicago's Graduate School of Business, Don Martin, associate dean of admissions and financial aid, acknowledges that "ultimate success in life is not dependent on an educational degree."

But, he says, feedback from graduates of his school reveals that the learning experience changes their lives. It gives them more confidence and the preparation to do what they want in life, he adds.

For now, recent MBA graduates such as Mark Pruett dream of being able to say that. The 31-year-old graduated in December from the School of Management at the University of Texas at Dallas.

"It's discouraging," says Pruett, who is taking evening classes at UTD to get another master's degree — in information technology management and consulting. The job market "has not been what I had hoped, but I'm not surprised by it."