An MBA During the Great Resignation?

Following the brief but intense Covid recession early in 2020, America’s astonishing labor market recovery has displayed the fastest rebound since World War II. This abrupt ricochet made history because of the sharpest unemployment rate plummet and the fastest expansion in payroll employment ever recorded.

Meanwhile, the media is full of stories right now about a continuing trend that first appeared during the spring of 2021 known as the “Great Resignation.” In December 2021, the proportion of employees quitting jobs reached its highest level since the U.S. Department of Labor started collecting that data.

As a result, in spring and summer 2022, the United States found itself well above full employment. In April, for example, the nation had 11 million open jobs but less than six million unemployed workers.

Given this amazing labor market recovery, one has to ask the question: does applying to MBA programs currently make any sense?

What is the Great Resignation?

The Great Resignation describes the ongoing labor market upheaval starting in early 2021 when American employees voluntarily resigned from jobs en masse. Dr. Anthony Klotz, a labor market expert and professor of management and organizational behavior at Texas A&M University’s Mays Business School originally coined this phrase during a now-famous June 2021 interview with the Boston Globe:

The Bureau of Labor Statistics reports the number of voluntary quits every month, and I noticed in 2020 it was way down from 2019. My hypothesis was that during the uncertainty of the pandemic, people stayed put. [When] the economy comes back, there are a bunch of people who are going to enact their resignation plans. At the same time, I was talking to frontline workers and reading articles about how burned out people were. Burnout is one of the key predictors of turnover.

During the pandemic, lots of people experienced mild or major forms of trauma, and lots of uncertainty about their life. Lots of people were having revelations about how they wanted to spend their time moving forward.

The sudden media frenzy surrounding Dr. Klotz’s analysis may have indirectly attracted more attention to Texas A&M’s business school than any previous event. Following his Globe interview, Bloomberg, Barron’s, and Business Insider all ran stories on his work, and even the Washington Post interviewed him for a feature article. He told the Globe that he believed his analysis caught fire because the Great Resignation concept breached a topic generally forbidden from conversation within American culture:

I think people were feeling this way but didn’t have a name to put to it. Talking about resigning is a somewhat personal and taboo topic; it is like talking about pay. I think the term resonated because it is fairly simple, but it surfaced a conversation that lots of people wanted to have.

It turns out that Dr. Klotz’s hypothesis and astute forecasting nailed a bull’s eye. This graph from the Federal Reserve Bank of St. Louis displaying Bureau of Labor Statistics data shows that the job quits rate peaked at 3.0 percent of the labor force during September, November, and December of 2021—the highest employment resignation rates ever recorded.

Moreover, according to Trading Economics, the average rate of quits during the period from 2000 to 2022 was only 1.96 percent—meaning that those highs are a whopping 53 percent greater than the 22-year average.

Almost 69 million people quit their jobs in 2021, and in spring 2022, the trend showed no signs of abating. The latest job quits statistics aren’t significantly less than during those three months of all-time highs, again climbing to 2.9 percent in February. Meanwhile, according to that month’s BLS Job Openings and Labor Turnover Survey (JOLTS) report, job openings hit a near-record high of 11.26 million in April, the fourth-highest total in history and the ten-month continuation of an apex near 11 million first evident in July 2021.

What is apparent from this mountain of data is that during a period when more Americans are quitting their jobs than at any time in history, job openings continue to remain stubbornly stuck near record highs. While these trends cooled somewhat in the summer of 2022, job growth remains strong and unemployment is low.

Countercyclical Trends in MBA Applications

Along with the Great Resignation, the well-known countercyclical trends in MBA applications might ostensibly suggest that many potential applicants will have “higher priorities” than applying to business school in 2022. These trends have been understood since the 1970s, and we’ve already described them in more than half a dozen articles here on BSchools.

To summarize, during economic contractions a countercyclical surge in MBA applications typically also appears. Because prospective MBA applicants experience fewer opportunities for salary raises, promotions, and better jobs while employers freeze hiring, these reduced career prospects reduce the opportunity cost of not working. Those diminished prospects make full-time business school seem like a more attractive “safe harbor” that provides MBA applicants refuge from potential layoffs and the human misery of unemployment during a tight labor market.

By contrast, during economic expansions like the one that the United States currently enjoys, those opportunity costs skyrocket. That’s because well-paid employees receiving promotions and lucrative competing job offers envision fewer incentives from foregoing all those career perks to return to lives as full-time graduate students.

Consequently, MBA applications slow during these expansionary periods. That’s what happened during the four-year period ending in 2018, and during 2019 alone, applications to MBA and specialized business master’s programs dropped 3.1 percent.

But as we correctly predicted here on BSchools, the pandemic drove a 2.4 percent surge in applications to graduate management education programs during 2020. That trend flattened as the economy reopened when those applications only climbed by less than half of a percent during 2021.

Who’s Driving the Great Resignation?

But before concluding that it makes sense to delay applying to MBA programs, first consider some of the data about the kinds of workers who may be driving the Great Resignation and the jobs they typically hold (or formerly held).

After all, if the data shows that plenty of excess professional jobs exist in key industries and sectors that tend to employ typical prospective business school applicants, it might make sense for some future MBAs to delay applying to business school to take advantage of those career opportunities. And one of the situations where that might seem like a good strategy would be if they’re well short of the years of work experience that they need to present a competitive profile to MBA admissions officers.

Instead, we find that upon closer analysis, controversy swirls around who’s actually driving the Great Resignation. Two studies, in particular, provide good examples of that controversy.

The Harvard Business Review/Visier Study

First, a September 2021 study published in the Harvard Business Review and written by Ian Cook, a vice president at the human resources analytics firm Visier, concluded that employees predominantly between 30 and 45 years old in the technology and healthcare industries drive the trend. Based on nine million employee records from more than 4,000 companies, Visler’s study found that the resignation rates of employees in this age bracket climbed more than 20 percent between 2020 and 2021.

As Cook explains in this YouTube interview, his team also found that 4.5 percent more employees in technology quit their jobs in 2021 than during 2020; in healthcare, resignations climbed 3.6 percent during the same period.

The HBR study might seem relevant to prospective MBA applicants from the technology industry who are somewhat older than those who typically apply to full-time, on-campus business school programs. Interestingly enough, the study failed to find an increase in resignations within the finance industry—a key “feeder” sector for applicants to business schools—and several other recent reports on finance industry labor market activity have also found similar results.

For example, notice that within the February JOLTS data in Table 4 (Quits levels and rates by industry and region, seasonally adjusted), the quits rates in the finance industry are substantially lower than the overall national weighted averages. For the 12 months ending in February 2022, the quits rates ranged between only 1.1 and 1.7 percent of the finance sector’s labor force. Moreover, while the national rate was 2.9 percent in the February 2022 report, the finance and insurance sector quits rate was only 1.3 percent, which amounts to a 55 percent decrease from the national average.

Furthermore, the February JOLTS report discloses that quits in finance and insurance decreased by 30,000. That same report says that job openings decreased in finance and insurance by 63,000, continuing the trend from the previous month when another decrease by 89,000 happened.

The Federal Reserve Bank of San Francisco (FRBSF) Study

Second, in contrast to the study published by HBR, an April 2022 analysis by an economist at the W.P. Carey School of Business at Arizona State University who’s also a research fellow at the Federal Reserve Bank of San Francisco (FRBSF) suggests that the workers driving the Great Resignation don’t come from occupations or sectors typical of prospective MBA applicants.

It may be true that Dr. Bart Hobijn did find that quit rate increases were particularly pronounced among younger workers, and especially among millennials between 25 and 34 years of age. This cohort includes the core age demographic found among applicants to all full-time MBA programs and a slightly older key demographic encompassing the much larger number of MBA students in the part-time programs.

However, Dr. Hobijn also found that the industries with the largest increases in their quits rates during the pandemic—as well as the fastest job growth during 2021—were also the sectors that Covid hit the hardest. These Covid-ravaged industries include food services, hotel accommodation; retail trade; and the entertainment and leisure sectors.

In particular, he found that the sector with the highest quit rate increase was food services, where workers tend to have less education. These are not by any means industries that are home to the kinds of jobs attractive to the majority of MBA applicants, and these sectors employ relatively fewer MBA graduates in management roles.

Critically Evaluating Business Press Reports

It’s vital for potential MBA applicants to keep this controversy over who’s actually driving the Great Resignation squarely in mind when evaluating press reports that might influence them to unwisely delay their business school applications.

For example, consider this story from ZeroHedge based on original reporting from CNBC and Business Insider. Covering a perennial MBA employer that typically recruits at many of the nation’s better business schools, this story is entitled “JPMorgan Hires Ex-Jailbirds As Staffing Shortage Worsens.” Here’s an excerpt:

As JPMorgan and the other major Wall Street banks struggle to hire enough personnel, Insider reports that the banks are now turning to an unlikely place: the largest bank in the US has hired thousands of people with criminal records and hundreds with disabilities like autism, Brian Lamb, JPMorgan’s global head of diversity, equity, and inclusion revealed during an interview on Thursday. In total, the bank employs more than 200,000 people around the world.

But right now, the company is “tapping into the talent pools that have historically been left behind,” Lamb said. This includes people who have formerly been incarcerated, who typically have a more difficult time getting hired.

Maybe Wall Street banks in reality are actually struggling to hire enough personnel—but that’s certainly not a story consistent with the data and the analyses in the above section. More precisely, even if the finance industry’s quits statistics and job opening counts indicated a widespread staffing shortage, the FRBSF analysis suggests that those openings would probably fall mainly among lower-paid clerical support jobs that don’t require college degrees. And in these press reports, no clear indications exist of large numbers of openings for the kinds of professional roles attractive to potential MBA applicants that might justify delaying their business school enrollments.

Discretion would be best advised even when evaluating Great Resignation stories from trusted sources in the management education press. For example, consider the Poets and Quants story entitled “MBA Now Or EMBA Later? How The Great Resignation Is Affecting Applicants’ Plans.”

It’s true that Poets conducted their reporting in February 2022, about two months before the publication of the FRBSF analysis. Nevertheless, the Poets story assumes that labor shortages exist among the kinds of professional jobs that might cause MBA applicants to delay their business school enrollments, without critically evaluating whether sufficient credible support reinforces that assumption. Instead, the piece focuses on how delaying an MBA to first accept a better job would knock elite applicants in their late 20s out of contention at the best full-time, on-campus programs because by age 31 they’ll be too old:

Are candidates for graduate business education looking at the landscape and deciding to eschew traditional full-time MBA programs now in favor of executive or online degrees later in their career, perhaps when the economy cools off? For someone who is 26, 27, 28 years old, it’s not an easy choice: Most MBA programs have traditionally looked askance at applicants once they hit 30. The window is short and closes rapidly.

For elite candidates applying to top-25 full-time, on-campus programs like Harvard, Stanford, and Wharton, that age window amounts to a legitimate concern, and the article then presents insightful interviews with admissions consultants who offer possible solutions.

However, for the other 95 percent of MBA applicants, there’s a more compelling motivation to enroll in business school without delay—and despite the most likely illusory prospect of a worthwhile job offer during the Great Resignation.

An Economically Transformative Experience

Professor Scott Galloway of New York University’s Stern School of Business argues that an MBA degree is life-changing because it’s an economically transformative experience. Most MBA graduates will at least double their pre-MBA salaries upon graduation. And as we’ve explained in several articles here on BSchools about this “salary uplift” effect, it’s not unusual for graduates of a few business schools to almost triple their pre-MBA compensation.

Now, maybe this effect might not apply to a software developer with a bachelor’s degree in computer science from Stanford who’s already making $150,000 a year working for Google, who wakes up one morning and suddenly decides to apply to business school. Or it also might not apply to someone lucky enough to land a job with generous stock compensation from a unicorn startup in Silicon Valley with plans to file for an initial public offering on Wall Street later this year.

But for most MBA applicants with bachelor’s degrees who earn roughly $60,000 a year, it will require a new job with an astonishing compensation package to justify delaying the ability to earn between double to triple their current salary, each year, and for the next 40 years.

In other words, for the vast majority of MBA applicants, it’s going to require a phenomenal compensation offer for the economics of delaying their MBA enrollment to make any sense at all.