Whether professional business education is useful has been a hotly debated topic since the first master’s degree in business administration was created at Harvard in 1908. However, new research suggests that MBAs equip corporate leaders with a skill. essential: cut workers’ wages.
A working paper distributed by the National Bureau of Economic Research looked at what happened to US and Danish companies after a CEO with a business degree took over from a CEO without a head. In both countries, having an MBA at the helm caused a drop in workers’ pay. Within five years of the acquisition by a company director, workers’ wages fell 6% in the US and 3% in Denmark, the researchers found. These salaries fell because the most valuable employees tend to leave after someone with an MBA took over.
MBAs have had limited success in other areas, according to researchers: Daron Acemoglu, an economist at the Massachusetts Institute of Technology; Alex He, Assistant Professor of Finance at the University of Maryland; and Daniel le Maire, an economist at the University of Copenhagen.
“[B]business managers are no longer productive; Companies that appoint business directors are not in differential trends and do not enjoy higher sales, investment in productivity or employment growth after joining, ”they wrote.
Reduction of workers’ wages
Business is the most popular subject taught in American universities, with a quarter of a million graduates in 2019. MBA degrees became more common in management from the 1980s, with approximately one-third of current CEOs hold a business title, three times the proportion of the 1970s.
Researchers found that the extension of MBA degrees to senior management coincides with the decline in fortune for the average worker. Between World War II and the late 1970s, the wages of American workers increased according to the amount they produced. Since 1980, however, workers’ output has risen three-and-a-half times the wage rate, according to research by the Institute for Economic Policy.
Adjusted for inflation, the typical worker in 2018 earned exactly the same salary as 40 years earlier, according to the Pew Research Center.
While there are several reasons for the decline, at least part of the blame lies with the MBAs, point out Acemoglu and his co-authors. The popularity of "business directors can account for about 20% of the decline in the labor quota [of income]. They also account for about 15% of the slowdown in wage growth since 1980, "they write.
The paper specifically points to a theory espoused by free market economist and evangelist Milton Friedman, who famously argued that corporations have no responsibility to their employees or to society at large, only to their shareholders.
"[T]Here is one and only corporate social responsibility: to use their resources and to engage in activities designed to increase their profits, "Friedman wrote in a 1970 essay.
The influence of Friedman’s ideas on the formation of business schools and management consultants led some “managers to begin to see workers not as stakeholders in the corporation, but as sources of costs to reduce. ", according to the document.
Do MBAs produce better CEOs? "No."
Around this time, corporate leaders also began to emphasize cost reduction by themselves, in which "identifying and eliminating unnecessary costs" began to be seen as an integral part of successful management. the authors.
But if executives with MBA degrees aren’t good for workers, are they really good for corporations? Previous attempts to answer this question have concluded with a resounding "no."
An article published in 2015 found that executives with an MBA tend to behave in a way that benefits them, but not their company. They spend more on acquisitions than leaders without an MBA and earn about a million dollars more a year in salary increases, while reducing the market value of their businesses.
A 2019 analysis by Institutional Investor magazine found no relationship between a CEO's educational pedigree and his company's stock performance. “MBA programs simply don’t produce CEOs who are better at running businesses,” the media concluded.
The new Acemoglu article raises more questions about the value of MBA training.
Betsey Stevenson, a professor of economics at the University of Michigan and a member of the Board of Economic Advisers under President Obama, he called the findings "condemnation of business schools, business education, [and] business "optimization" practices.
“Managers with MBAs are the best at taking money out of workers and not much else,” he said in a tweet.
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