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The "average" MBA fares SPECTACULARLY better than the "average" college graduate. By comparison, the expected annual wage growth for workers with only undergraduate degrees has averaged just one percent more than inflation. Because of this difference in growth rates, the expected annual earnings gap between those with undergraduate degrees and those with MBAs should more than double—in real terms—over the course of their respective careers. Long-term unemployment. Since 1970, graduates with profes- sional degrees have experienced unemployment rates that are 25 percent less than those with undergraduate degrees, accord- ing to the Statistical Abstracts of the United States. Unemploy - ment rates were 1.9 percent and 2.4 percent, respectively. Likelihood of participating in the workforce. To be considered a workforce participant, an individual either must be employed or actively seeking a job. Between 1970 and 2001, 81 percent of those with professional degrees were workforce participants. By comparison, only 78 percent of those with undergraduate degrees fell into that category. Again, figures are drawn from U.S. Statistical Abstracts. When all measures of salary and employment are consid- ered, the value of an MBA can be quantified. Graduates with MBA degrees clearly fare better than those who have only earned BS or BA degrees. Combining these four economic benefits makes it possi- ble to measure the earnings gap, or the difference between the lifelong earnings potential of the average college gradu- ate and a graduate with an MBA. Figure 1 shows the typical annual compensations that graduates with MBAs and bach- elor's degrees can expect to earn during their careers. Salaries are calculated from age 31 onward, as the majority of MBA students are between 28 and 34 years of age. Figures have been adjusted for the likelihood of unemploy- ment and labor participation. Expected Annual Compensation Over Course of Career $140 K $120 K $100 K $80 K $60 K $40 K $20 K 0 (2003$) Note that, during their prime earning years, around the age of 50, those with MBAs earn about $120,000 annually. That's roughly twice the amount earned by their counterparts with bachelor's degrees. Evaluating the Investment Any investment can be evaluated by three measures: the breakeven point, the internal rate of return, and the net pres- ent value. The breakeven point represents the number of years it takes for the income from an investment to pay for the investment. The internal rate of return is the effective inter- est yield that results from the investment. Net present value is the amount of cash-in-hand today that, if invested at current interest rates, would yield a stream of payments identical to the income generated by the investment. If we use these three measures to judge an MBA from an AACSB-accredited school, we find that the average MBA degree is an extraordi- nary investment—even better than it was ten years ago. Breakeven point. In 1993, a 31-year-old who had earned a full-time MBA had invested an estimated $124,000 in the degree—$15,000 in tuition, plus $109,000 in lost compen- sation—according to the Annual Survey of Colleges pro- duced by The College Board. He could expect to pay that off in 9.8 years. By 2001, however, the cost of the MBA had increased to MBA BS/BA 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 Age 44 BizEd JANUARY/FEBRUARY 2005 $162,000, including $23,000 in tuition plus $139,000 in lost wages. Nevertheless, the graduate with an MBA now could expect to earn more money more quickly, enabling him to pay off his higher debt in less time—8.7 years. Figure 2 shows that the breakeven point is getting shorter, not longer, despite rising tuition costs.