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The Business Major Paradox

Posted on March 25th, 2011, by 2 Comments

I have always had a hard time answering a fairly fundamental question: why do American businesses seem to prefer to hire undergraduate business majors, and, even more, why do they typically pay them a premium over what majors in history, philosophy, psychology or political science make? There is one, possibly even three exceptions, to my consternation. Accounting is a rather demanding, rigorous business field where college training imparts a lot of very usable vocational skills, and, to a lesser extent, that is true of majors in management information systems or related computer-intensive fields, as well as in finance. I can see why employers would want to hire these majors.

But in the core business areas of management and marketing, I have long felt that the instruction is largely of limited intellectual content and little practical utility – people can learn how to sell wickets or manage a small group of employees just as well by studying engineering, communications, history, or, for that matter, mortuary science.  And, by and large, my students, including returning alumni, over the year have agreed with me. Salary data suggest that earnings rise dramatically with age, suggesting much “learning” is done on the job, and students studying intellectually weak and information-deprived courses in business are not going to have the critical thinking skills that might assist in the post-graduate learning-by-doing process.

Now there is pretty good empirical evidence from the magisterial work of Arum and Roksa (Academically Adrift) that shows that undergraduate business majors study less than virtually any other category of majors with the possible exception of education. Typically, they study under 10 hours a week –less than I studied in some days a half a century ago when I attended college. According to Arum and Roksa, they learn little about how to think critically. Why, then, do businesses still look to these majors in filling a large portion of jobs?

To some extent, of course, businesses do look elsewhere. If you look where top CEOs went to school, it is obvious that a disproportionate number attended schools without undergraduate business degrees –most Ivy League schools, other elite private universities, and top liberal arts colleges fit that description. My research center, the Center for College Affordability and Productivity (CCAP), ranks colleges and universities for Forbes. My sidekick Chris Matgouranis tells me that most (72 percent) of the schools ranked in the top 50 do not have undergraduate business degrees or majors while many of those that do have relatively small programs, not comprehensive business administration degrees (e.g., they might have a single major in business economics or accounting).  By contrast, looking at schools ranked from 501 to 550 (near the bottom of schools examined by CCAP), show that 98 percent of them do have business degrees or majors. Good schools avoid business training, not so good ones promote it.

Is this an example of market failure? I would love to know the post-graduate vocational success rate of business vs. non-business majors. Perhaps I am wrong – maybe I am biased. Let’s see the data. College is largely a screening device, and employers think that students studying business have interests closer to what they need then those studying math, philosophy or history. But is that really true? I think if the IRS (or, less good, the Social Security Administration) would provide schools  and the general public with earnings data five or ten years after graduation of students by institution attended and major, we could get at the question: are employers behaving rationally? Are information costs so high that picking employees largely on the basis of major makes sense? Should we move towards more national testing of students using exams modeled either after the CPA exam or maybe even some test of cognitive and critical learning skills, such as the Collegiate Learning Assessment? Maybe public policy should work to lower these occupational information costs to employers that perhaps lead them to make inappropriate hiring decisions.

More fundamentally, why are employers, college major aside, paying huge salary premiums for students who are spending five years or so in living a largely hedonistic life-style while learning little? Again, if there were readily accessible information on student cognitive skills, writing abilities, critical learning skills, etc., for all those with a high school diploma, might employers reassess their hiring practices? Might students reassess their post-high school training? Might America make better use of young and potentially energetic human capital?

This article originally appeared on “Higher Education and the Economy,” CCAP’s blog space on Forbes.com.

  • http://www.wallyboston.com wboston

    While I think there’s some merit to this argument, there’s a counter argument using data presented in The Global Auction by Brown, Lauder, and Ashton. In their publication, the authors cite a war for talent with corporations soliciting students attending elite institutions as a way to shortcut the process of finding smart people (acknowledging that smart people attend other colleges and universities, but it’s easier to find them if you target the elite institutions). With many of the elite institutions committed to the principle of an undergraduate liberal arts education, their graduates are unable to major in business (Duke did not have an undergraduate degree in the 1970′s when I attended and still doesn’t offer one). Their liberal arts graduates are also more likely to receive a graduate degree which further enhances their professional opportunities.

    Lastly, the authors of the same book point out that the average earnings of college graduates are misleading; that the wage earners in the top 10% of a particular occupation earn on average four times the wage that those in the lower percentage do. They also state that more often than not, the wage earners in the top 10% are graduates of elite institutions.

    As much as I value my liberal arts education, I’m not sure that if my classmates and I had a business degree option that we wouldn’t have done just as well as we did with a liberal arts degree. Maybe someone should make a comparison of Penn’s Arts & Sciences undergrads’ earnings vs. the earnings of undergrads who graduate from Wharton.

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