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The global supply and demand for MBAs

Authors: The Work Foundation Dr Caroline Elliott and Dr Kwok Tong Soo

23 January 2013

Universities are sometimes regarded as “ivory towers”, in which academics, often disconnected from the real world, engage in “esoteric, over-specialised or even useless research”. With academics frequently also taking on administrative roles, such assertions may imply that universities operate impervious to economic forces. Maybe the historical funding of universities by the UK government has led to this impression of universities’ work and achievements. If this is the case, UK government policy to reduce public university funding and allow universities to charge undergraduate fees of up to £9,000 a year could result in greater efficiency, as universities will be forced to bow to market forces as students shift towards universities which offer the best “value for money”. However as research this week showing as many as six-in-ten graduates are forced into low paid work or left jobless, many will be re-considering their options.

Unlike undergraduate degrees, there is no cap on the fee which may be charged on MBA programmes, making these potentially a very lucrative income stream for universities worldwide. In a recent working paper, we investigated the impact of rising MBA fees on applications and whether universities respond to changing numbers of applications by changing their fees (or the rate of increase)? We found that universities are indeed bound by the market forces of demand and supply in the market for MBAs. Higher fees curtail applications – a US$1,000 increase in fees is associated with a 0.25% decrease in the number of applications per place. Similarly, if there are more applications per place, this encourages universities to increase fees, to the tune of $1,500 for every per cent increase in the number of applications per place. Whether a similar pattern will occur in undergraduate applications has yet to be analysed, data from UCAS suggests that this increase in fees has been accompanied by decreased application numbers.

We also investigated whether other factors influence fees and applications for MBA programmes. Higher post-MBA salaries are associated with a greater number of applications per place – there’s no mistaking what MBA students are looking for! Changes in university rankings do not appear to influence either fees or applications. The institution’s overall reputation appears to be more important than the annual fluctuations in published rankings. Similarly, professional accreditation do not appear to have any significant impact on either applications or fees. Perhaps in this sample of the best MBA programmes in the world (as ranked by the Which MBA? guide), being accredited by the professional bodies is less important than the institution’s reputation as being a top school.

Of course, it could be argued that the MBA market is somehow different from other qualifications and subject areas, that MBA students are inherently more focussed on the financial return on their investment in their MBA than other students. But is this really the case? There has been much recent media coverage (and academic research) on the financial returns to different university degrees. Whilst useful, one of the effects of such coverage has been to elevate the view of university education as simply another financial investment. The other benefits of going to university – especially the learning part – are forgotten in the pursuit of “measurable” goals. Maybe we should keep in mind that “not everything that counts can be counted, and not everything that can be counted counts.

Dr Caroline Elliott is a Senior Lecturer in Economics at Lancaster University Management School and Dr Kwok Tong Soo is a lecturer in the Department of Economics. The Work Foundation is part of Lancaster University.