Impact of MBA Degree to Women’s Income Stream Impact of MBA Degree to Women’s Income Stream I. Introduction People’s decisions particularly those that relates to education have a significant impact to an individual’s future. Education’s impact to an individual’s future is not only limited to better prospects in life such as having better education but in fact extends to an individual’ earnings in the future. This justifies Human Capital Investment Decisions to pursue graduate school despite high tuition and opportunity cost (foregoing a good job to be able to go to school).
To illustrate how pursuing an MBA positively affect an individual’s income stream in the future, we will take the case of two group women, one who took MBA and one who did and compare how their human capital investment decision had affected their lives particularly their earnings when they retire at the age of 65. The first group of women decided to make human capital investment of going to graduate school and pursue their MBA while the second group decided to marry their college sweethearts and settle down.
Then we would predict how this decision affected their earnings at age retirement age of 65, whether taking MBA or not indeed makes women economically better off than marrying their college sweethearts. The groups that was chosen were women because of their dramatic increase of enrolment in MBA programs over the last three decades. By determining approximately how much an MBA degree can improve the income stream of its enrolees in the future, we could also determine if the cost and effort of getting an MBA degree would be worth it.
To clearly illustrate the effect of an MBA degree to earnings, we will compare two groups, the first group are those that took and finished their MBA degree and the other group are the ones that married their college sweetheart right after college. In determining how MBA degree can impact the future income stream of an individual, we should consider the following in our computation; Preferences and abilities – this is expressed in the rate of discount which is typically the going rate in the market.
Opportunities – can also be expressed as opportunity cost or income foregone during the course of pursuing the MBA degree. Costs – actual cost in taking the MBA degree. This will include the tuition fee, board and lodging and other expenditures. Total cost in pursuing MBA = Opportunity cost + actual cost of pursing MBA. To determine how an MBA degree economically affect income stream, we will compare the NPV of the group of women who only finished college degree then got marry versus the other group of women who pursued their MBA after one year of work experience and then compare the present value of their potential earnings in the future. II.
Group of women that only finished college then got married and join the workforce The formula of determining the net present value (NPV) of the group of women who only finished college degree and then got married and joined the labour force is; represents the salary of college graduates. To realistically get the salary of college graduates, we can infer to the statistics of National Colleges and Employers.
According to National Colleges and Employers, the average salary of new graduates is $44,455 in 2012. Since this was still in 2012, we can round the figure off at $50,000 in 2015 for simplicity. This would give us; 44 represents the years before retirement granting that rate of discount is flat at the market rate of 5%. So it will give us $50,000 + (47,619 x 44 years) where 44 stands for the years of work before retirement. So net present value for finishing college is $50,000 + 2,095,236 = $2,145,236. The net present value of women who finishes college then marry and join the labour force would be $2,145,236. III.
Group of women who took their MBA after one year of experience Now let us determine the lifetime earnings of the group of women who pursued their MBA. Let us assume that they have worked for one year so they have a beginning balance of $50,000 to initially fund their MBA. They will also study full time and will finish the degree in two years whereby they can immediately find work after finishing MBA.
We could get the average of MBA graduate salary at payscale research where around $75,000 (payscale. com, 2015). The total cost of MBA per year varies per university. Top universities such as Harvard could cost up to $95,100 in class of 2016 (Harvard University, 2016) while it is pegged at $47,632 at reputable schools such as Illinois University. For the sake of simplicity, we will peg the total cost of studying MBA per annum at $50,000 also. Opportunity cost is $50,000 since it is what the student made when she worked after college.
Expressing this in NPV equation would be; Or in figures; Where 50,000 is the actual cost of education and the other 50,000 is the opportunity cost or the income foregone for pursuing MBA. There will be 42 years of work after graduating MBA before one reaches 65 to retire. So it will give us; $50,000 – ((100,000/1.05) x 2)³ + ($75,000/1.05) x 42) $50,000 – (95,238 x 2) + 3,000,000 Where $190,476 (95,238 x 2) represents the total cost of education.
So it will be computed as follows; $50,000 - $190,476 + $3,000,000 Where the $3,000,000 represents the total earnings after MBA before retiring at 65. So the NPV for pursuing MBA is $2,859,524 IV. Compare and contrast income The figure shows that the income stream of women who finished MBA is way greater than those who did not. We can summarize the findings as; NPV of MBA graduates – NPV of college graduates = difference in income Giving us the figures $2,145,236 - $2,859,524 = $714,288 where $714,288 is the difference in income proving that those who will decide on invest in human capital such getting an MBA education will be economically better off than those who do not. V.
Conclusion The result is agreeable to the report that getting an MBA degree will help boost women’s career and improve their economic earnings (Schulte, 2015). This also explains why the share of women in top MBA programs had increased from close to zero in the 1970s to 30% at the end of the decade (Goudreau & Tulshyan, 2010). It is also predictable that this trend will not only continue but will also increase because the significant increase in women’s earnings became significant when they finished their MBA degree. References. Goudreau, Jenna & Tulshyan, Ruchika.
(2010). Why more women are heading to business school. Forbes, April 16, 2010. Retrieved March 31, 2015 from http: //www. forbes. com/2010/04/16/mba-women-business-school-forbes-woman-leadership-education. html. "Harvard Business School. " Cost Summary. 1 Jan. 2015. Web. 1 Apr. 2015. HBS. (2015). Statistic MBA. Harvard Business School. Retrieved March 31, 2015 from http: //www. hbs. edu/about/facts-and-figures/Pages/mba-statistics. aspx. "Master of Business Administration (MBA) Degree Average Salary. " Master of Business Administration. 1 Jan. 2015. Web. 1 Apr.
2015. Salaries for Class of 2012 College Grads Are up 3.4% over the Pay of Those Who Graduated a Year Earlier. "Starting Salaries Rise for New Graduates. " CNNMoney. Cable News Network. Web. 1 Apr. 2015. Schulte, Brigid. (2015). Women are underrepresented in top MBA programs. U-Md. aims to solve that. The Washington Post, February 19, 2015. Retrieved March 31, 2015 from http: //www. washingtonpost. com/news/grade-point/wp/2015/02/19/women-are-underrepresented-in-top-mba-programs-u-md-aims-to-solve-that/. "Tuition & Costs. " : Full-Time Illinois MBA: University of Illinois. 1 Jan. 2015. Web. 1 Apr. 2015.