American Home’s fall was triggered by the recent meltdown of the market for securities backed by risky U.S. home loans and the debt crisis that followed.
This sort of collateral damage to a company that hadn’t done anything wrong – other than relying on one customer for most of its business – got me wondering what’s likely to happen to the demand for MBAs if the U.S. and other economies slow down or slip into recession as a result of the economic fallout from the mortgage mess. A recession isn’t a far-fetched idea. On Sept. 12, the quarterly Anderson Forecast by the University of California at Los Angeles predicted growth in the U.S. gross domestic product of just over 1 percent for the fourth quarter of 2007 and first quarter of 2008.
If history is any guide, a recession won’t be pretty for people already in B-school. At the height of the downturn following the dot-com bust, job offers, starting salaries and signing bonuses were off for MBA job-seekers, even from the top business schools.
Things didn’t improve until the economy heated up.
But a recession isn’t necessarily a bad thing for people considering starting an MBA. For one thing, return on investment calculations for an MBA typically include the cost of forgone salary. If salaries aren’t rising as fast, then that part of equation is lower. Also, studying for an MBA could be the best use of time during a recession. The idea is that you go to school when times are tough, and come out with improved credentials in a year or two, just as economic conditions are – one hopes – improving.
On the international scene, any changes in MBA applications engendered by tough economic times could be disproportionally represented by Indian students. As BusinessWeek.com reported last month (“MBA Applications Surge” http://www.businessweek.com/bschools/content/aug2007/bs20070815_302636.htm), India is powering a strong growth in international applications seen to full-time programs in the U.S. More than 60% of the U.S. schools surveyed by the Graduate Management Admissions Council said that most of the international applications came from India.
So, if history repeats itself, the outlook might not be too bad for those considering an MBA, even if recession looms. But, as we so often see, history also has a way of deceiving us.
Phil Mintz is the B-Schools Channel Editor for BusinessWeek.com in New York. He can be reached at [email protected]
