Are Wall Street careers just the luck of the draw?

Graduating in a good year can make a big difference to the prospects and earnings of MBA graduates who go into investment banking. Those who graduate during a bear market may find their career options and lifetime earnings are drastically cut down.

by Stanford Knowledgebase
Last Updated: 23 Jul 2013

Paul Oyer of Stanford Graduate School of Business studied the long-term career choices and salaries of more than 35 years' worth of the school's own graduates.

He discovered that the proportion of graduating MBAs who manage to get hired into lucrative investment banking positions shrinks or expands depending on how the equity market performs in a given year.

More than 23% of Stanford MBAs who graduated in 1985 became investment bankers. But just 17% of graduates two years after the crash of 1987 took that career path. The lifetime income differences were correspondingly huge - with investment bankers earning $2m to $6m more than those who went into alternative careers.

The vast majority of investment bankers, which includes money managers and venture capitalists, who are still in the job after five years will continue working in the sector for a long time. Attrition in the first five years is just 5-10% and dwindles even further thereafter.

Thus the common sense view that only a minority have the right aptitude for investment banking is not supported by the evidence. The numbers going into investment banking in a particular year do not affect attrition rates.

"The idea has long been that MBAs change jobs all the time. But [in fact] it's pretty sticky. Once you're there you tend to stay," says Oyer

Source: The Macro-Foundations of Microeconomics: initial labour market conditions and long-term outcomes for economists
Paul Oyer
Stanford Business School's Knowledgebase Newsletter, June 2006
Review by Joe Gill

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