A blog reader asks for advice:
Hello Professor Mankiw,
I am a second-year economics student at the University of California, Davis. I was wondering if you could share your opinion on the career options provided by a Ph.D in economics compared to those of an M.B.A., particularly with regards to earning potential. Historically I have preferred business school for its good "bang for the buck," but lately I have thought that immediate graduate school might be my best option, given the relative strengths and weaknesses of my track record (i.e.,stronger academics than work experience). Could you tell me which option you would prefer in my position? You don't have to make any sort of absolute, unequivocal statement, but I appreciate any advice you can offer. Thank you very much for your time.
I believe that from a purely financial standpoint, an MBA is a better investment than a PhD. An MBA is only a two-year program, whereas a PhD is typically four to six years. The extra time for a PhD probably not yield the extra income needed to make it a good investment of your time. A typical Harvard MBA gets a starting salary a bit over $100K; the typical econ PhD does not start much higher than that.
But the issue is not entirely pecuniary. The question you should be asking yourself is what kind of job you want to have when you conclude your education. A PhD makes sense if you want to consider the possibility of being an academic. You may pursue a PhD and then decide along the way to pursue a different path than being a professor. That is okay: Many PhD students leave for the private sector when they are done with their degrees, and they get very good jobs there. But if you are sure from the beginning that you want some kind of private-sector job, then the MBA is probably the better route.