The Arizona Republic reported today that "In a new cost-benefit study of MBA programs by Bloomberg Businessweek, ASU's W.P. Carey School of Business ranked 10th among American universities and 18th overall on the return-on-investment measure. Thunderbird was No. 18 in the U.S. and 31st overall."
The study estimated ASU MBA students see a post-graduation pay hike of $40,000 on average, with those at Thunderbird adding $35,000. Graduates of Harvard, on average, see a $30,000 salary bump. (In fact, the top five U.S. MBA schools for overall quality - the University of Chicago, Harvard, Pennsylvania, Northwestern and Stanford - all ranked near the bottom in ROI).
That salary bump doesn't come free, of course - the total cost of an MBA includes income forgone to be in the program and the cost of the program itself. Still, an MBA from ASU or Thunderbird (U of A didn't participate in the study) is a benefit to the graduate, provided he or she plans to work enough years to recoup the investment - an average of 6.5 years.
This certainly isn't the first study to demonstrate that fact, which holds for most college degrees. In 2005 the Seidman Research Institute at ASU published a study on the value of education - theirs focused on undergraduate degrees - titled "The Value of Higher Education: Individual and Societal Benefits (with Special Consideration for the State of Arizona)."
The authors found that a bachelor's degree brought significant benefits to the graduate:
- Average annual earnings of individuals with a bachelor's degree are more than 75 percent higher than the earnings of high school graduates. These additional earnings sum to over $1 million over a lifetime.
- To properly assess the economic value of a college education, the benefits realized in terms of higher future earnings must be discounted to adjust for the time value of money. . .When these calculations are made, the benefits of a college education are seen to be more than three times as large as the costs.
- If the value of a college education is expressed on the same basis as the return on a financial investment, the net return is on the order of 12 percent per year, over and above inflation. This compares favorably with annual returns on stocks that historically have averaged 7 percent.
But what about the value to the state economy? Publicly-provided (or, at least, subsidized) higher education is predicated on the notion that more highly educated people contribute more to the state's economy - in essence, the ROI on public higher education is positive for the state, too. As it turns out, the state does generate benefits from its college graduates (provided, of course, they remain in the state). From the Seidman report:
- Social benefits of a workforce with greater educational attainment and skills can be traced to the enhanced worker productivity associated with greater educational attainment. These productivity gains translate into higher output and incomes for the economy.
- A statewide simulation designed to measure the impact of raising the share of college graduates in the labor force by 0.2 percent reveals that total costs match benefits after about 11 years. After accounting for the time value of money, the payback period is about 13 years and the net discounted benefits (benefits less costs) that accrue after 20 years are estimated at $364 million.
There are secondary benefits, too. A more highly educated workforce, from which companies can draw talented employees, can - all else equal - entice companies to locate in Arizona. Once companies begin to locate here, a virtuous cycle begins where the state (or metro area) becomes known as a place for strong education, talented workers, and innovative companies - which breeds even better education, more talented workers, and more innovate companies. Think Silicon Valley, North Carolina's Research Triangle, or Austin.
The value of education, then - to the graduates and to the economy as a whole - is critical to keep in mind as policymakers go to the cutting board again to balance the state's budget. Clearly, something's got to give (I've said that before, here and here), but cuts should be made on the basis of a cost-benefit analysis - not only "how much can we save by cutting here?" but also "how much benefit are we going to forgo if we make that cut."
