The MBA degree does make a difference

Research by Mark Wellman

The Smith School of Business has an internationally renowned research program where leading scholars from various disciplines are continuously striving to improve our understanding of the business world. But perhaps no research is as directly relevant to the Smith School itself as Mark Wellman’s research on the value of the MBA degree. Wellman and his co-authors show that the MBA degree has a positive impact on salary, promotions and managerial status. Their research also shows that employers do give importance to the MBA school rankings.

Wellman is a Tyser Teaching Fellow in the department of management and organization. Along with co-authors Mary A. Gowan and Susan C. White, George Washington University, Wellman has written a paper called “MBA Degree and School Tier as Human Capital: Comparative Study of MBA and Non-MBA Career Success.” This paper was judged by the Academy of Management reviewers to be one of the best accepted papers and was published in the Best Paper Proceedings of the 2006 Academy of Management Meeting.

It is perhaps not very well known outside academia that there is a great degree of controversy on whether the MBA degree is of economic value. Prior research on this subject is either not very clear or suggests that there is little evidence that obtaining the MBA degree positively impacts salary or career attainment. Wellman and his co-authors argue that prior research on this subject suffers from a variety of shortcomings such as the use of a limited sample (e.g. studying students from only one business school) or examining a small set of variables (e.g. only looking at impact on salary).

The study uses a large, nationally representative, longitudinal sample of MBAs and non-MBAs to address some of the discrepancies found in previous studies. The study used a comparison group of non-MBAs and controlled for factors such as GMAT scores, undergraduate GPAs, occupational industry and job type. They also examined the impact of the MBA on various objective measures of career success such as salary, managerial attainment, and promotions.

Wellman and his co-authors found that MBAs tend to have greater career success outcomes in the form of higher salaries, promotions and greater management responsibility than non-MBAs. Skeptics may argue that MBAs were more successful because of factors such as a high undergraduate GPA, attending a prestigious undergraduate university, having high cognitive skills, and previous work experience. But even after controlling for undergraduate GPA, GMAT scores, years of work experience, undergraduate major, and ranking of undergraduate institution, Wellman and his co-authors found that having an MBA led to a higher salary and a greater likelihood of being promoted.

The study also looked at whether human capital variables have an influence on which business school MBA students attend. The authors found that higher GPA, GMAT scores and number of years worked, along with the higher ranking of the undergraduate program, resulted in students pursuing an MBA from a higher ranked business school. They then found that even after controlling for human capital variables, business school rankings have a partial impact on an MBA’s career success. Thus, although human capital variables such as GPA, GMAT scores, and others are important, having an MBA from a highly ranked school adds value beyond what is received from attending a lower-ranked school. This suggests that employers tend to give importance to the otherwise much-maligned business school rankings.

One of the most remarkable things about Wellman’s study is the quality of the data analyzed. The Battelle Center for Public Health Research and Evaluation designed the GMAT registrant survey and collected the data with the Graduate Management Admissions Council (GMAC) funding the survey. The resulting data comprises the only nationally representative sample of GMAT registrants and contains detailed information about the impact of an MBA on career outcomes. The survey data is unique since it allows comparisons between the registrants who completed the MBA degree and those who dropped out of the pipeline at earlier steps and went on to other endeavors.

Wellman is well aware of both the tremendous impact of this work as well as its limitations. “This paper impacts not just the MBA schools and students, but also the employers who hire MBAs. However,” he adds, “there is always the possibility that salary outcomes were affected by macroeconomic supply and demand forces.” Not one to rest on his laurels, Wellman is already immersed in his next paper. This time he is using data from the Baccalaureate and Beyond Longitudinal Study to address some familiar, and some new, questions about the value of an MBA degree. His latest research has received support from the Graduate Management Admissions Council.