MBA Pay Growth: U.S. Business Schools Lag Behind

Photograph by Snap Decision

MBA pay growth at business schools in the U.S. has lagged significantly behind increases in Europe and Asia, according to recent research on pay trends adjusted for purchasing power.

The research by professors at the Spanish business school ESADE is based on data published in the Financial Times from 2001 to 2010. It shows graduates of Asian business schools had MBA pay growth of 64 percent, vs. 35 percent for those in Europe and 12 percent for those in the U.S.

The authors, François Collet and Luis Vives, attributed the pay growth in Europe—and the growing presence of non-U.S. schools near the top of the FT’s international rankings—to the growing demand for MBAs in Europe and the geographic proximity of European programs to the key labor markets they serve. The authors focused on the U.S. and Europe because Asian business schools represent only 8 percent of the 147 schools examined.

“The demand for business students grew very strongly in Europe at the end of the 1980s, and European business schools had a strong connection to the local labor markets,” Collet said in an interview. “For European students it made a lot more sense to attend a European business school rather than study in the U.S.”

The study, which has been accepted for publication by the Academy of Management Learning and Education, uses pay data from the FT that is collected the year before it’s published from MBAs three years after graduation, and combined with data from two previous years. So the 2010 data used in the study are for the graduating classes of 2004 to 2006; the 2001 data are for the graduating classes of 1995 to 1997.

To avoid distortions between countries, the FT uses pay figures in “international dollars” (see chart) that have been adjusted for purchasing power parity, in effect increasing or decreasing raw pay figures based on the cost of goods where the MBA graduates are working.

The professors examined a number of other possible causes for the poor showing of U.S. schools on pay, including post-9/11 visa restrictions in the U.S., the financial crisis, growth in the supply of MBA graduates worldwide, the higher likelihood that Asian students studying in Europe will return to Asia after graduation, and the fact that most European programs are shorter and therefore less expensive. None of those changes “can fully explain the erosion of the differences in salary levels and ranking positions between MBA graduates from U.S. schools and their counterparts from European schools,” the authors wrote.

What does all this mean for deans of U.S. and European business schools? For one, the authors write, they should begin taking Asia seriously, using alliances with business schools there to tap into the region’s economic growth and to maintain and improve their status at home. “If alliances mattered in the past, they’re going to matter even more,” Collet says. “It’s not about getting a few students in Shanghai. It’s a more complicated story.”

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