Ups and downturns
May 15th 2008
From the Economist Intelligence Unit
MBA students appear remarkably sanguine in the face of a difficult job market. “Which MBA” asks: are they right to be?
There should be nothing more disheartening for an MBA student than, after all that work, graduating into an economic downturn. Particularly when the organisations suffering the biggest economic woes are prime recruiters of MBAs: financial services and banks. But, while no one doubts that the prospects for the economy and job market have worsened, compared with previous downturns something feels different this time around: both business schools and MBA students are remarkably upbeat.
There are several reasons for the hopeful outlook. Firstly, no one really knows how bad the economic situation is, particularly in America. Commentators are divided about whether the country really is in a recession and, even if it is, how severe it is likely to become. Some argue that an economic upturn may begin later this year. Across the Atlantic, the Governor of the Bank of England recently commented that the fears of subprime meltdown might be overstated.
Second, MBA students themselves seem more realistic and pragmatic. They appear resigned to downgrading internship and job offer applications, from high-paying positions in investment banking to more mundane corporate posts.
Furthermore, although top job offers are down, so far MBAs have not seen internships or job offers withdrawn, and are not being laid off just a few months after being hired. Both of these were widespread following the dotcom crash of 2000—an event that still resonates in the minds of MBAs.
The effect on MBA admissions also seems to be mixed. MBA admissions are traditionally counter-cyclical to the economy, with numbers often rising in a downturn. Fuelled by severance pay, some seek to ride out the storm, switch careers and hopefully coincide their graduation with an economic upturn. On the other hand, those in jobs sometimes just decide to hang on to them.
At the moment there is no sign of any downward trend in applications. Nearly 60,000 students took the GMAT, the business school entrance exam, in the first three months of 2008—a 12% increase on the same period in 2007. In America the increase over the period was 8% and elsewhere 19%.
Overall, business schools and their students seem to be displaying a laudable maturity, refusing to panic—at least for now—and stressing that the MBA degree has long-since stopped being a golden passport to a well-paid and secure job. Many are well aware of the economic downturns of the past, notably the global recession of the early 1990s and the dotcom crash a decade later. Neither did much to dent the long-term attractions of the MBA.
As the dean of Spain's IESE, Jordi Canals, points out, when you have been in the business school world for a while you appreciate how the business cycle works.
“Business schools survived the last downturn,” he says, implying that they will survive this one too.
So, hopefully, will their students.