The Alarming Decline Of The MBA’s ‘Value Added Ratio’

Dartmouth Tuck Dean Matthew Slaughter

A DIFFERENT VIEW OF THE RATE OF RETURN ON THE MBA

This is true across many of the most highly ranked schools. Earlier this year, for example, Tuck received a $15 million donation from Paul Raether, a 1973 alum, and his family in support of scholarship funding—and 2017 was a banner year for scholarship fundraising at the school, with $20 million raised by year’s end. Even before this big fit came in, the market value of Tuck’s scholarship endowment had been $87.6 million at the end of the school’s fiscal year in June.

Rather than focus on the hard numbers, Tuck Dean Matt Slaughter sees the value of the degree very differently. “As an economist,” he says, “I think about the rate of return of a business school like Tuck as having three important components. One is global. We live today in a world where the real interest rate on all investments—one of which is an MBA education—is lower than it was in earlier decades. This trend was gathering before the World Financial Crisis and has continued in the decade since, and it is driven by a set of deep and wide forces we only partly understand.

“A second component is particular to all of higher education. For decades, higher education has realized less innovation and productivity growth than have other industries. And yet, we are an industry whose most important asset is talent: great students, thought-leading faculty, and skilled administrators. This combination tends to drive up the cost of education faster than the rate of general price inflation.

‘THE STRENGTH OF THE MBA DEGREE ENDURES’

“And a third component, which applies to Tuck and schools like it, is, What is our strategy, and how do we bring to life that strategy in a way that delivers as high of value as possible? No one can foresee perfectly the future demand for the MBA degree by people and companies.”

In the end, a ratio may not really matter. There has been salary compression in just about every field, regardless of the degree you have. But as Slaughter notes, “The strength of this degree endures, in part because its skills are so applicable around our dynamic world and because there continues to exist in this world the need for skilled and principled leaders.”