What does a business degree get for a business? Not much besides a shift of wealth from workers:
in both the US and Denmark, when a chief executive officer with a business degree (“business manager” for short) takes over from a non-business manager, there is a significant decline in wages and the labor share of the firm (relative to non-business-manager firms). With our event-study design, we find a 5 percentage point decline in the labor share and a 6% decline in wages in the five years following the appointment of a business manager in the US. The same approach in Denmark yields similar and only slightly smaller results: a 3 percentage point decline in the labor share and a 3% decline in wages. In neither country do we see any differential trends in the labor share, wages, employment, output, or investment before the term of the business manager begins. Nor do we detect much of an employment, output, investment, or productivity response, which suggests that business managers are not more productive than their non-business peers [Daron Acemoglu, Alex He, and Daniel le Maire, “Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark,” National Bureau of Economic Research, March 2022].
…to management and stockholders:
The reduction in wages following the accession of a business manager leads to an increase in profits: the return on assets (ROA) increases by 3 percentage points in the US and by 1.5 percentage points in Denmark. In the US, we also find an increase of about 5% in the stock market values of companies that appoint business managers. We further show that all else equal, managers with business degrees earn more than non-business managers [Acemoglu, He, and le Maire, March 2022].
So, sure, getting that MBA can put more money in your pocket. But you’ll be taking that money out of your workers’ pockets.
Workers today are nothing more than a production cost in a set of corporate books. Used to be, you came up thru the ranks, so by the time you got to the top, you understood the entire business from the mail room to exec suite. Now you go to an elite biz school, come out with an MBA and you know it all. It says so right on the diploma. None of these geniuses run companies any more. They just run a set of books and make hundreds of times the $$$ the poor schmuck on the production end takes home. And we wonder why workers are discontent?
Peter principle = A concept in management which observes that managers tend to rise to “a level of respective incompetence” aka failure:
– Supervisors are promoted to managers based on their success in previous jobs until they reach a level at which they are no longer competent aka inept.
– Ability in one job does not necessarily translate to success in another job.
Loren,
There are a few of us who have come up through the ranks AND have an advanced degree in business. But only a few.