April 25, 2008

MBA Grads Face Challenges During Economic Downturn

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2008 has proven to be a nightmare of a year for recent MBA graduates across the country. As they prepare to graduate during one of the worst economic downturns of this decade, MBA students no longer have the luxury of choosing between multiple job offers and being courted by an even greater number of firms. As corporate America trims costs and adopts a more cautious recruiting stance, Cornell’s Johnson Graduate School of Management has felt the effects.
“From talking to second year students, there were a smaller number of firms that came to recruit on campus, but several of my classmates got their jobs on their own by going off campus and talking to Johnson alumni there,” said Sergey Losyev MBA ’09.
Despite having fewer firms on campus this year, the Johnson School has largely been able to navigate through the challenging economic environment by maintaining a relatively high level of full-time and summer job placements for its students. Particularly encouraging is the fact that no offers have yet been rescinded by any of the firms that recruited from the Johnson School this year.
“The same number of students received offers this year as last year from investment banks. Overall, 75 percent of both the Class of 2008 and the Class of 2009 have job offers as of last week, but it is not unusual for our students to get offers in the last month,” said Karin Ash, director of the Johnson School’s Career Management Center. “However, with five more weeks until graduation, I expect that there will be a slight decline in the percentage of students with offers compared to last year, when 90 percent of the Class of 2007 had offers.”
Those who have not received job offers, however, are keeping their options open and looking at opportunities as they present themselves.
“The majority of our graduating class has full-time offers, but everyone realizes how competitive the finance jobs are getting. There is still a positive spirit, and that is important. Those who are still searching know that, often, the most interesting opportunities come right near the end, from small companies in growth industries,” said Keith Collier MBA ’08.
Recent studies have shown that a more serious problem awaits students graduating into an economic downturn — a problem that will not fully manifest itself until later in their lives.
According to BusinessWeek, a study conducted in 2006 found that Canadian college students graduating in a downturn earned about 6 percent less than in the first 10 years of their career.
A second study authored by Lisa Kahn, a Ph.D. candidate at Harvard, examined the impact of the 1982 recession on U.S. undergraduates. Its findings revealed that every percentage-point increase in the unemployment rate at the time of graduation translated into a 7 to 8 percent initial wage loss.
Johnson School students pay $66,210 per year to attend the two-year MBA program, with the goal of significantly increasing their future earnings powers.
Prof. Paul Oyer, Stanford, examined the job histories of Stanford MBA graduating classes from 1960 to 1995 and found that those who graduated during a bull market — or a period of time marked by increasing investor confidence — were more likely to pursue careers in investment banking. As a result, they earned far more over the course of their careers — $1.5 million to $5 million more — than those in other professions, such as a career in managerial finance.
“If you graduate in a recession, you are likely to work in a different [industry],” Oyer said in an interview with BusinessWeek. “That will take you down a different track for the rest of your life.”
With increasing economic uncertainty, MBA graduates, particularly those in the Class of 2009, will face difficult career decisions and some will be forced to pursue “Plan B” instead of a dream job on Wall Street.
“People should always have a ‘Plan B,’ but the ‘Plan B’ is not going into an alternative, but rather, moving back to the industry [from] which they came. Too many people dream of doing private equity — today’s new buzzword. It used to be e-commerce when I was here last. However, the road to Wall Street is narrow — many start the race and few finish it. You have everyone wanting to be a banker, and then by the time they graduate, few actually are,” said a second-year MBA student who returned this semester from Wall Street to complete his degree.
“MBA job prospects are not as bad as they were when I was here [the first time], as we were in the middle of recession [earlier this decade]. Today we are at the start of one, so the situation will be bad for next year’s MBAs; not so much this year’s, if the economy continues to disappoint,” he said.
However, for one group of MBA graduates looking to switch careers, job prospects are much worse as more cautious recruiters turn first toward candidates with relevant previous experience.
“It’s certainly very tough to be a career switcher. The expectations of you are above not only what you learn in school, they also include industry-specific types of skills — you need to understand the specific industry you want to switch into and how things get done,” Losyev said.
Another important factor affecting a graduate’s ability to land an offer is whether he or she had an internship and was able to leverage that into a full-time offer.
“My job search process went relatively smoothly, but it is mostly a function of the work I did last year in landing a great internship and converting that into a full-time offer. By November last year, the job market looked a lot different than it did in September,” Collier said.
Whether a new graduate lands the dream job, resorts to “Plan B,” or does not receive an offer, one option always remains open and allows students to escape the down cycles of the economy: going back to school until the economy improves. In the long run, this may prove more profitable.