Graduate Management News

How Economic Forces Shape the MBA Pipeline

Conventional wisdom says that the demand for business school goes up during a recession. Is that true during this economic downturn? Or does the global nature of the recession and of graduate management education complicate this picture?

Yes—and yes, says Alex Chisholm, senior research analyst at the Graduate Management Admission Council. The historic relationship between recessions and business school demand is holding true during this economic downturn, but demographic shifts among those seeking graduate business education around the world paint a more complex picture.

Presenting a session on the impact of the global economy on the MBA pipeline at GMAC’s Annual Industry Conference, Chisholm quoted numerous indicators showing how dramatically the economy has changed in a short period of time. Back in July 2008, the IMF projected a 3.9 percent growth in the world gross domestic product for 2009 – a prediction that had plunged to 1.3 percent retraction just nine months later. “The scariest thing is how quickly and severely things have deteriorated,” he said.

Meanwhile, GMAT volume has risen—to a projected record of 265,000 for the testing year ending June 30, 2009, as US job losses have hit 6 million since December 2007. Chisholm showed how peaks in GMAT testing volume have corresponded with recessionary declines in US employment over the past three decades.

Within the larger picture, he also noted:

Those graduating from graduate business programs this year do face a tighter job market and are likely to receive slightly lower starting salaries when compared with graduates from 2008. Job offer status, however, varies substantially by industry, citizenship, and school location. Notably, among 2009 graduates of full-time MBA programs, only 29 percent of non-US citizens at non-US schools had a job offer a few months before graduation, down from 54 percent in 2008. By comparison, 57 percent of US citizens graduating from full-time MBA programs at US schools had job offers, down just 7 points from last year’s 64 percent.

Despite the bad indicators and economic uncertainty, research from several GMAC surveys shows that business graduates still value their education, the premium MBAs hold in the job market remains, and corporate employers still value MBA hires. Some 98 percent of corporate employers say they are satisfied with their MBA employees in 2009, no change from 2008, he said. “Corporate employers are very happy with the skills your students are coming in with.” In addition, figures from the US Bureau of Labor Statistics show that education still pays─not only in median earnings but also in job security.

As more people enter the GME pipeline, the overall composition of the pipeline is changing. GMAT score-sending patterns show that a higher proportion of Asian and European citizens are interested in business programs that use the GMAT, with significantly higher percentages of scores being sent to schools in Asia and Europe. Although a smaller proportion of students are interested in US schools, that decline has been more than offset by the rise in overall testing volume in recent years.

Economic Fluctuations and Historic GMAT Demand

Source: (1) GMAC Data, GMAT Exams Taken by Testing Year. (2) US Bureau of Labor Statistics (BLS), Total Nonfarm Employment.
* GMAT exam volume smoothed for 1997 and 1998 to adjust for volatility caused by switch to computerized testing.
** Projection for TY2009 GMAT Testing. TY2009 US Employment data through May 2009.

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