Why Diversity Is Essential To The Health Of The U.S. Domestic Student Pipeline

Diversity in the classroom is one of the most cited objectives of business schools. Yet, it is a broad term that often means different things to different people. Gender, race, ethnicity, origin, and socio-economic background are all facets of diversity. Schools, depending upon their own unique circumstances focus on all or a subset of these areas.

It is worth considering why we want diversity in the first place. There are three broad reasons. The first two are well understood and I will not dwell on them. That last is incredibly important when you think about the sustainability of our institutions but is not really spoken of much. I will try to address this gap.

The first, and from a student standpoint the most important, is that the experience of a diverse class is just so much richer. Different backgrounds, experiences, and perspectives enliven a discussion. While important in all forms of education, a diverse classroom is even more crucial in business education since so much of the learning experience is not fact-based but experience- based (the value of a case discussion with multiple options and nuanced decisions is enhanced by the different experiences of the workgroup). We don’t only teach facts; we try to create managers who think critically and holistically. The views of someone who is not like you are invaluable to critical thinking.

DIVERSITY IS A WAY TO LEVEL UP BUT ALSO IMPROVE STUDENT PIPELINES

The second reason that we want diversity is to level up. This is the argument for social justice. African Americans in the U.S., Dalits in India, and women worldwide. There is a recognition that we must create a more egalitarian playing field and education is an important part of this. The fact that this process of leveling up and access has economic benefits is an important side effect. A big part of the diversity conversation is driven by these goals.

The third reason, one could argue is important from a school sustainability point of view: we need diversity to maintain our own student pipelines. Business education is really a business like any other (sorry Academy). In the absence of state funding (which is fast disappearing), it depends on fee-paying customers (students) to generate the revenues that pay our bills – including much of our thought leadership and research. In that aspect, we are no different than automobiles or consumer products.

So, what happens when our market matures and changes? The U.S. is a good example as the domestic market is declining while international students are exposed to alternative destinations. Since we are talking about the contributions of diversity to the potential student pipeline, let’s look at the domestic U.S. market in terms of gender and race/ethnicity, ignoring the important contributions of international student flows to the U.S. pipeline (the subject of a future column). I will also speak to the U.S. market as a whole, recognizing that individual schools will have their own dynamics.

WHITE AMERICANS IN THE 18-34 AGE GROUP WILL DECLINE FROM 2020 TO 2034

The gender mix in graduate management education in the U.S. is about 55% male and 45% female (I am staying with binary definitions and not getting into the gender classification debate here). Obviously not parity, and closing the gap can make an important contribution to increasing the addressable market. In Europe, the ratio is closer to 65/35 and gender can have a much larger role in increasing the size of the market. This is well understood, and efforts are underway to close this gap. The U.S. gender ratio in GME was closer to the European 65/35 a decade ago.

In terms of race and ethnicity, the U.S. domestic Market can be broadly segmented into white Americans, African Americans, Hispanics, Asians, Native Americans, etc. Of these, the highest propensity to get a GME degree (let’s call this the participation rate) has been amongst white Americans (actually the participation rate of Asian Americans is higher but they make up too small a proportion of the population) while African Americans and Hispanics lag behind. The addressable market problem is that the population of white Americans in the 18-34 year range is expected to decline by 4.7 million or 3.9% between 2020-2034 (U.S. Census projections) and that of African Americans is also expected to decline by 0.5 million. The Asian American population grows by 0.7 million but does not make up the gap. The significant growth is in the Hispanic population. The Hispanic, Latino, and Hispanic white populations grow over this period by 7.2 million or 7.9%. By 2030, the Hispanic categories represent 47% of the age cohort. These trends only accelerate over time.

The effects of these shifts on GME are exaggerated by the fact that white Americans have the highest participation rate in GME (NCES data) while Hispanic Americans have among the lowest participation rates. Quite simply, the historical market segment (Whites) is increasingly underrepresented in our U.S. domestic market while the fastest growing segment (Hispanics) has the lowest penetration rate in GME. The implication of the math is obvious. If nothing changes, the white American segment (population multiplied by participation rate) declines by around 150,000; the Hispanic American segment increases by only 70,000. 

But what if we were able to bring the participation of these underrepresented subgroups up to the current mean? We would see a dramatic increase in the total U.S. domestic addressable market – the white American segment would still decline by 150,000 but the Hispanic American segment would increase by over 400,000. The total addressable market would increase by 14.7%. Interestingly, the Black American segment would stay flat as a declining population base offsets increasing participation. The argument for Black participation is one of social justice. It does not move the addressable market needle).

 

A couple of caveats. The U.S. Hispanic population is not monolithic. It is itself composed of a variety of subgroupings ranging from native-born Americans to recent refugees, from high-education family backgrounds to no college families, of Mexican, Cuban, Puerto Rican, Venezuelan, and Spanish descent. They are a melting pot in themselves.

But there are other things that we do know. The biggest concentrations are in the fast-growing South and Southwest.  Many business schools are in the North and Northeast. Some research has also shown that Hispanics are less willing to relocate due to strong community ties, creating a potential gap between potential demand (in the south and southeast) and current supply (north and northeast).

US counties where race/ethnic minority groups are overrepresented (Brookings)

 

HISPANIC AMERICAN PARTICIPATION COULD DRIVE GROWTH IN THE U.S. DOMESTIC PIPELINE

Might this lead to the answer to two problems faced by graduate management education in the U.S.? One, the decline in the domestic addressable market, driven by a smaller white American population and no longer filled by international students. Two, a way for regional schools, particularly in the South and Southwest, to address declining enrollment by capitalizing on geographic alignment with Hispanic population centers?

These numbers are compelling. Hispanic American participation could be the biggest single driver for the growth of the U.S. domestic student pipeline ahead of gender equality and African American participation. To be clear, there are many good arguments for a focus on the latter two. I merely make the point that Hispanic American participation has a greater impact on the addressable pipeline.

The how, as always, is complex. It would involve effective segmentation, positioning, and the promotion of role models. We would need to target local entrepreneurship and community business as goals – not just Fortune 500 C-suites. Online programs could promote their on-campus experience to play up geographic proximity. Career services would also need to adapt.

All the answers are not obvious but if we as a GME community collectively, and specific business schools individually, dedicate our energies and resources to the challenge, we just may have the means to reignite a new wave of domestic growth in graduate management education.

The segment analysis may be different outside the U.S., but the argument that a suitably diverse student pipeline can sustain demand and the addressable market would still hold.

All this will be even more important in the face of the changes that we are seeing in global student mobility. The subject of next month’s column.

DON’T MISS: A Decade Of Graduate Management Education: ‘I Love You, You’re Perfect, Now Change’