Researchers have come out with data on the role of
MBA-wielding managers on salaries and profitability. And the findings—though striking—might not surprise you.
A working
paper from NBER states that within five years of the appointment of a manager with a business degree, wages decline by 6 percent and the labour share by 5 percentage points in the US against firms operated by non-business managers.
The National Bureau of Economic Research paper has not been peer-reviewed or been subject to review by the NBER board of directors, but the findings could be a wake-up call for
B-schools (MBA schools) and business optimising practices.
Wage growth has slowed down, and the labour share in national income has declined in many advanced economies over the last three decades. The paper argues that a contributing factor has been “changes in wage policies of firms associated with business education of their managers/CEOs”.
“Our final sample contained around 9,900 US publicly listed firms with complete information on CEOs,” the paper states. “In 1980, only 26 percent of the Compustat firms had CEOs with business degrees (non MBA). This had grown to 43 percent by 2020. Almost all of the increase came from the share of CEOs with MBAs--up from 24 percent in 1980 to 37 percent in 2020.”
Compustat is a database of financial, statistical, and market information on active and inactive global companies. The paper shows that Harvard Business School contributed 19 percent of the business degrees of CEOs, followed by Wharton (8 percent), and Stanford (5 percent).
The findings show that firms do not enjoy higher output, investment, or employment growth after hiring business managers. “This suggests that business managers are not more productive than their non-business peers,” the paper states.
The paper goes on to illustrate that reduced wages seemed to go hand-in-hand with managers’ reduced proclivity to share rents with workers. Rent sharing is when a company shares profits after paying all factors their market rates with its employees.
But if a manager with MBA leads to reduced wages for employees and does not lead to higher profits for the firm, why are such managers hired?
Who benefits from having such business managers? Since business managers did not change the growth or productivity, lower wages should imply higher profits.
To find this, researchers started looking at changes in firm profitability, measured by return on assets. And the findings state that following a switch to business manager, return on assets increases by about 3 percentage points in the US.
“Higher profits also translated into higher stock market prices,” the paper states. “One clear group of beneficiaries from the practices brought about by business managers are shareholders.”
To be sure, the researchers ran similar studies for MBA managers in Denmark and concluded that it “is not just a US phenomenon”.
First Published: Apr 7, 2022 12:58 PM IST
