Paul Oyer backs away from using the word luck. But nevertheless
his research shows that many young MBAs who go into investment banking
might just follow that career due to happenstance as much as because of
a die-hard allegiance to Wall Street. And those who graduate during a
bear market may never get the chance later to start a Wall Street
career—a fact that dramatically cuts down on their lifetime earnings.

It always struck me that being in the right place at the right time
was important in career paths, said Oyer, an associate professor of
economics at the Stanford Graduate School of Business who studied the
long-term career choices and salaries of more than 35 years' worth of
the School's graduates. From surveys conducted in 1996 and 1998, Oyer
concluded that random factors play a large role in determining the
kinds of jobs that MBAs take upon graduation. Specifically, the
proportion of graduating MBAs who manage to get hired into lucrative
investment banking positions shrinks or expands depending on how well
the stock market is performing in a given year.

For example, more than a quarter (26 percent) of Stanford MBAs who
graduated two years before the stock market crash of 1987 became
investment bankers. But just 17 percent of the MBA graduates two years
after the crash took that career path. And the difference in payoff was
huge. Based on the salaries provided by thousands of MBAs in this
self-reported survey, Oyer calculated the present value of lifetime
income of an MBA who went into investment banking to be $2 million to
$6 million higher than an MBA who went into a non-banking career. Thus
the classes of 1988 and 1989 could expect significantly lower lifetime
income due to the timing of their graduation than the classes of 1985
and 1986, said Oyer.

Oyer also discovered that MBAs who go into investment banking—a
category in which he includes money managers and venture
capitalists—tend to stay there for the long term. For example, in the
first few years after receiving their MBA degree, 5 to 10 percent of
the people in investment banking leave, but attrition slows
significantly after the fifth year and the percentage of a typical
graduating class that works in investment banking does not change
significantly after that point.

Thus although it might seem intuitive to believe that there are a
limited number of MBAs who have a natural aptitude for investment
banking, there's no evidence to support that. Instead, the
significantly greater numbers of MBAs who go into investment banking
during bull markets are just as dedicated to banking in terms of how
long they stay there and how much money they make. This tells me that
there is a deep pool of potential investment bankers in any Stanford
MBA class, said Oyer.

Another of the surprising things Oyer found during his research is
that MBAs are not hopping in and out of investment banking in search of
the perfect job. The idea has long been that MBAs change jobs all the
time. But what this study shows is that they are not jumping in and out
of investment banking. It's pretty sticky. Once you're there you tend
to stay; once you've started down another path, you're not likely to
move to a Wall Street firm.

The research also suggests that bull markets might discourage
entrepreneurs. One question you would naturally ask, if in bull
markets more people go into investment banking, what they are not
doing? asked Oyer. And because there are a fairly limited set of
things that MBAs do, there's some evidence that when bull markets move
people onto Wall Street, it takes away from consulting and
entrepreneurial careers.

On thing that the study does bear out is that graduating MBAs are
correct in perceiving that general economic factors in the year they
graduate will have profound long-term implications on their careers.
Every year our students get very anxious about the state of the job
market. I always thought we—because I was the same way when I was
finishing school—were being silly, said Oyer. But as it turns out, we
had pretty good reasons to be worried about the state of the job
market, as it would affect a lot of us for a long time to come.