How Much Does The MBA Program You Attend Affect Your Lifetime Earnings?

Business School AdmissionsBloomberg BusinessWeek has just published the results of its second annual study of the lifetime earnings of graduates from the world’s top MBA programs, in partnership with PayScale. While the data are interesting, the headline’s not necessarily earth-shattering.

The key takeaway? Graduates of HBS, Wharton, and other ultra-elite business schools earn more money over the span of their careers than grads from any other MBA program. HBS grads earn the most, comfortably ahead of second-place Wharton. While these numbers are certainly interesting, there were a few other numbers in the article that piqued our interest more.

What Does It All Mean?
I’m not going to tear the study apart; I think it’s a really fascinating subject, one that gets right at the heart of what we do here at Veritas Prep. But, as the article states, the study does have its shortcomings. First, the study excludes harder-to-measure compensation items such as stock options, meaning that it might look at the Stanford GSB grad who joined Google back in 1999 as a relative pauper.

(As an aside, check out the guy in the picture in the new BusinessWeek article. Looks like he’s driving a car that can float in water, some sort of high-end amphibious convertible. We want one!)

Also, as far as I can tell, the survey doesn’t compare apples to apples as far as carer paths go. Of course the MBA who builds a fast-track career on Wall Street is going to make more money than the grad who joins a leadership development program at a medium-sized manufacturing company. Does that mean that the former grad necessarily got more bang for his buck from his MBA program? (Or, is an MBA “not worth it” unless you’re going to embark on one of those seven-figure career paths?)

What We Really Want to Know
The real question that we’d like to answer — and, again, this study deserves credit for getting closer to the answer than most others ever have — is how much more a business school grad makes over the course of his career because he attended a given MBA program. Undoubtedly, a large part of the appeal of a top business school is that it opens the doors to those seven-figure banking careers (and attractive management consulting gigs, terrific leadership development programs, challenging brand management opportunities, etc.). But, what numbers the study uncovers will be heavily impacted by what careers a given school’s graduates pursue. A school that sends a high percentage of its grads to investment banks will certainly show higher lifetime earnings than a school that sends a large number of grads into the non-profit sector.

One way to at least partly solve this problem would be for the study to break out graduates by job or industry. That may prove challenging because graduates switch jobs a lot, and in some cases breaking down the numbers may make a certain school’s numbers too small to be statistically reliable, but it would be an interesting exercise.

Intriguing Stats Regarding Salary Increases
Beyond that, we were intrigued by the measure of how much certain business school grads’ compensation increases over 20 years. Interestingly, the average increase for graduates of the top 45 MBA programs was 75%, which mirrors the average increase that the general U.S. population sees. Of course, MBA graduates’ salaries start out much higher than most typical U.S. workers’ so you’re talking about a larger dollar gain over those 20 years, but this was still interesting to us. If a business school prepares a young professional to lead, wouldn’t you expect top business school grads’ salaries to increase faster than that of the typical American? It’s an interesting question.

And, some top MBA programs — such as Ross, Yale, Sloan, and Tuck — have graduates whose salaries increase significantly less than the average American’s. That’s not a list a school would want to be on! But, again, there are so many factors in play (including, as one MIT Sloan representative pointed out, the fact that many grads may go into entrepreneurship, which may produce an artificially low salary number for some grads). So, again, very interesting numbers, but be sure to take them all with a grain of salt.

Let’s Do Some Research!
Finally, getting back to the question I raised earlier — how to know how much a business school is responsible for a graduate’s lifetime earnings — probably the only way to truly answer the question would be to conduct a controlled study from start to finish. Find a population of promising young professionals who are considering a variety of career paths, randomly assign them to each of the country’s top business schools, and then watch their earnings over the next 20 years. Now that would be an interesting study.

Anyone interested in being randomly assigned to Harvard?

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