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Human capital augmentation versus the signaling value of MBA education

Listed author(s):
  • Hussey, Andrew

Panel data on MBA graduates is used in an attempt to empirically distinguish between human capital and signaling models of education. The existence of employment observations prior to MBA enrollment allows for the control of unobserved ability or selection into MBA programs (through the use of individual fixed effects). In addition, variation in the amount of pre-MBA work experience allows for a test to distinguish between the models. In particular, a predominant signaling view is shown to predict smaller returns to the degree, the more pre-MBA work experience one has (controlling for total experience). Additionally, a unique feature of the data is that respondents were asked to report skills or abilities gained through their schooling, allowing us to determine the extent to which these purported skills are valued in the labor market. The combined evidence suggests that while human capital accumulation may contribute to the returns to an MBA, the majority of the returns is derived from the signaling/screening function of the degree.

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File URL: http://www.sciencedirect.com/science/article/pii/S0272775711001804
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Article provided by Elsevier in its journal Economics of Education Review.

Volume (Year): 31 (2012)
Issue (Month): 4 ()
Pages: 442-451

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Handle: RePEc:eee:ecoedu:v:31:y:2012:i:4:p:442-451
DOI: 10.1016/j.econedurev.2011.12.004
Contact details of provider: Web page: http://www.elsevier.com/locate/econedurev

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  1. Orphanides, Athanasios & Zervos, David, 1995. "Rational Addiction with Learning and Regret," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 739-758, August.
  2. Brown, Sarah & Sessions, John G., 1999. "Education and employment status: a test of the strong screening hypothesis in Italy," Economics of Education Review, Elsevier, vol. 18(4), pages 397-404, October.
  3. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
  4. Joseph E. Stiglitz, 1973. "The Theory of 'Screening', Education, and the Distribution of Income," Cowles Foundation Discussion Papers 354, Cowles Foundation for Research in Economics, Yale University.
  5. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
  6. Henry S. Farber & Robert Gibbons, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1007-1047.
  7. Lazear, Edward, 1977. "Academic Achievement and Job Performance: Note," American Economic Review, American Economic Association, vol. 67(2), pages 252-254, March.
  8. Wolpin, Kenneth I, 1977. "Education and Screening," American Economic Review, American Economic Association, vol. 67(5), pages 949-958, December.
  9. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 227-252, October.
  10. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  11. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  12. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 313-350.
  13. Peter Arcidiacono & Jane Cooley & Andrew Hussey, 2008. "The Economic Returns To An Mba," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 873-899, 08.
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