I came across the following article in CFO magazine last night (see Ports in a Storm). The article details how applications have been picking up at business schools over the past year, and how such a stylized fact hints at an economic slowdown.

Anyone wanting further proof that the world economy is in trouble need look no further than the nearest business school. Many schools are hailing a bumper year for their full-time Master of Business Administration (MBA) programmes, which are popular with executives looking to hone their moneymaking skills while sitting out a downturn.

…Preliminary figures from the Graduate Management Admission Council (GMAC), an international organisation of business schools, show that 77% of full-time programmes have reported higher demand for places this year.

Applications to full-time MBA programs generally run counter-cyclically with the economy. In good times, fewer folks want to go back to school because there is ample opportunity to make good money, and leaving money on the table can be difficult. In fact, I remember during the dotcom boom that MBA students were dropping out of school in droves to open e-businesses that promised to make them rich. We all know how that turned out.

In bad times, people go back to school not only because their earning potential is lower, but also because many find themselves out of work, and with few alternatives. Going back to school allows students to wait out the economy.

But it would be wrong to look at a boom in applications and assume that it translates into a boon to the bottom-line. Although full-time applications tend to go up during economic downturns, other B-school offerings suffer – e.g., part-time MBA, executive MBA, and executive education programs.

During recessions, businesses reign in discretionary spending. One easy way for businesses to decrease costs is to eliminate spending on educational benefits for employees. Businesses often sponsor candidates for part-time and executive MBA degrees. And corporations are prime clients for custom executive programming. These lines of business (part-time, executive MBA, and exec ed) are generally more profitable for business schools than full-time MBA programs.

I anticipate corporate funding for these programs will dry up.

And although applications were up for most business schools this past year, it is likely that they will continue to increase in the coming years. As the article explains:

Worryingly for those betting on a swift economic recovery, business schools reckon that next year could yield an even bigger crop of applicants.

This does not bode well for our economy.

This entry was posted on Tuesday, August 12th, 2008 at 5:01 pm and is filed under Business Schools, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.