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Economic Analysis Of MBA

"Today, human capital defines an organization" . Especially in a competitive industry, the firm often finds an edge because of key business decisions made about employee selection, recruitment, training, and succession planning. The employees become an important commodity – the human capital of the firm. In addition, education is an investment in human capital. Individuals invest in human capital to raise their own productivity and lifetime earnings potential, but corporations must also make an investment by contributing to the education of their workforce. "Company tuition reimbursement programs make employer concerns a complementary factor influencing individual demand".

How does the human capital theory apply directly to MBA education? First, an explanation of the human capital model as it was posited by neo-classical theorists follows. Becker is one of the most influential theorists on the subject. Within his model, Becker specifically refers to two different types of education, or training – general and specific. He defines general training as that which will enhance worker productivity in the current firm and at an equal level in any other firm. Whereas, specific training is only useful in the current firm and therefore would not be transferable to another firm.

Just how would an MBA be regarded in this economic framework? An MBA degree is, by definition, a generalist business degree that trains the student in all of the functional areas of business. Therefore, MBA skills would be seen as transferable skills, apparently placing a graduate business degree in the general training realm. However, Becker's model also assumes that, with general training, the employee pays for all of the costs. In reality, many employers do pay the tuition for attendance in part-time MBA programs – approximately 60% - according to the 2000 Global Survey of MBA students. They do this even though there is a high probability that the employee will leave the firm after taking advantage of this educational benefit. Why would the company do this even with the threat of losing that employee? It is the cost of doing business in a competitive environment. The majority of the large corporations provide tuition reimbursement, so they would be foolish not to. Therefore, MBA training, although general in content, is often treated as specific training by the policy-makers of the corporation. This would make it somewhat of a hybrid according to the human capital theory of economics.

Full-time vs. Part-time MBA in India

In a study done by Agnello and Hunt, cost-benefit analysis was used to compare the student's investment in the full-time MBA, a part-time MBA, and a bachelor's degree. Two elements were measured -- lifetime earnings and return on investment. Research was done on the salary history of 251 white males from one corporation. Results confirmed that although the lifetime earnings were greater for the full-time MBA graduates, total return on investment was higher for those employees who had attained an MBA via the part-time route. Therefore, the part-time degree is "the preferred choice as an investment in human capital for the individual". Possibly the most salient explanation for this finding is the fact that the student has effectively taken foregone earnings out of the equation, while as a part-time student they are still a full-time employee. All education, including the MBA, adds value to the employee and ultimately to the corporation as it enhances productivity. This part of the human capital model has been disputed by what is called "screening" theory. Arrow suggests that education adds value merely by acting as a "sorting device, separates individuals with valued abilities from those without these abilities".

The human capital theory is found to be valid especially for individuals whose education is directly related to their occupations, whereas diplomas are often used as a screening device in the situations where individuals choose an occupation deviant from their education. Using this conceptualization, the MBA degree would definitely fall on the side of human capital theory. "Employers continue to value the MBA as a guarantee of all-round business skills and knowledge". The appeal of the MBA degree, for both the employer and employee, is that it continues to evolve to keep up with changes in business and reflect the needs of corporate India and the globe. Even if we accept the idea that education increases productivity, the added value of education may still be lost if the employee decides to leave the corporation after the degree is obtained. Research into the relationship between educational benefits and loyalty has shown that although the employee desires tuition reimbursement, it is often a double-edged sword for the employing firm.

Benefits and Expectations of the MBA Student/Graduate:

There were several attempts in the 1990's to examine the specific expectations and benefits of getting an MBA. Prasad and Joseph conducted a study of 9956 graduate students as to their reasons for getting an advanced business degree. The MBA students stated that they were influenced to get the degree because of the "competitive advantage (71%), monetary rewards (58%) and career advancement opportunities (62%)". Also in 2007, K T Kumar reported that over 70% of entering MBA students at one leading business school describe themselves as "career changers". A study by Baruka in year 2008 tracked the enrollment decision process of 334 students accepted into a newly redesigned MBA program and found that their strongest influences were career advancement (75%); personal fulfillment, (66%) and career change (50%). This research provides interesting information about the career intentions of MBA students.

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