October 10, 2013

MBE – The Destroyer of the founding pillars of Economics?

"The opposite end of Economics is charity?"

This was a remarkable quote from my secondary Economics teacher that I can still recall. From our elementary Economics class, Economics is about the study of how we satisfy our unlimited wants optimally with limited resources. The introduction of workers (or relationship) oriented approach, however, seems going to the opposite end of Economics. With a background of Economics, this thought to me was stunning, if not unacceptable.

Survival of the fittest. According to Economics, if a worker failed to do their job, the manager should fire him or her to maximize profit. The relationship approach, however, that MBE adopted suggested that the manager should try his or her best to provide aid for this below average worker to push himself or herself up to the standard. If it still failed after several attempts, the manager shall assist the worker to relocate to another job which suits his or her abilities and skill sets.

At first, I was thinking if this charity-like idea violates the principles of Economics. After some analysis, this idea actually fits in to Economics nicely based on 2 points.

First, the company is concerning the Long run instead of Short run. Indeed, using extra resources on a person who is about to leave the company may seem irrational. In the short run, the company is suffering lost as this resources could have been used in research and development or as an extra wages for workers acting as a substitute of extra work due to the resignation. In the long run, however, workers may realized the company is willing to support them when they are underperformed, and this way of thinking may create a powerful impact of motivation. This analysis can be supported by the ?¡±monitoring and pay?? experiment on employee performance under Microeconomic theory.

The second point is that after accounting the opportunity cost of layoff of a worker, providing support to them can be an optimal choice. Lay off of workers requires huge amount of resources to reemploy a worker, and even worse, hiring an even worse employee. This resources could have been allocated to retraining, R&D etc, which we name it as opportunity cost. As long as the cost (the administration work, re-hiring costs and OC) is smaller than the benefit (probability of increasing productivity if the new comer is a good one), one should not take this action.

Is MBE the Destroyer of the founding pillars of Economics? In this time they work out smoothly. And I have to admit that, although the content of MBE is rather controversial and requires critical thinking, the process of transforming the knowledge of MBE into my own knowledge is quite enjoyable.

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