Wednesday, November 22, 2023

Do business schools make money?

This is Joseph.

There is a letter by Clifford Ando on the costs at the University of Chicago. This passage particularly struck me as interesting:

Now, tuition in the business school is $80,961. Undergraduate tuition is $63,801. So whatever the difference is, it is hard to imagine a 33% tuition premium could compensate for half the class sizes and a cost of instruction of 3.5 x as high based on salary. Just in instructional costs, that would suggest class sizes are big (for parity you need classes 5.25 x as big, presuming instructional costs are the most important piece of this costing). So that isn't where the revenue likely is. 

So where is it coming from? These are very large salaries at the assistant professor level and are well above the salary cap for federal grants, even with it currently increasing briskly, so even research grants don't much sense unless they are massive. Keep in mind these are assistant professor salaries, so we'd expect them to increase with rank quite substantially. 

Consulting does not seem to be something that could cover so much and they have 200 faculty. There endowment is > 1 billion, so maybe that is the answer? But at around $5 million per faculty member it still seems to be light. 

Anybody have insight into what is going on here?

1 comment:

  1. No undergraduate pays full tuition at a major private university, but often get significant support from the campus. At a major business school, the students often do pay the full tuition as it is covered by their employers. (Note this is almost never true for graduate students.)
    I would guess, and this is just a guess mind you, that many of those 200 faculty are not FTEs. The number of adjuncts is much higher than one would expect from a typical department as the institution and the faculty member both get benefit from the association.
    Famously, business school faculty get paid much more than faculty in other departments. Check out the University of California's pay scales, for example. The lowest rank business, econ, or engineering faculty make $100k while other faculty make $61k.