The Relationship between Human Capital and Employability:
Issues from the Firms’ Perspective
Roslinah Mahmud, Rostika Petrus Boroh, Rasid Mail, Mohd Hazran Abdul Basir, Noor Fzlinda Fabeil, Rosle Mohidin, Khairul Hanim Pazim
Faculty of Business, Economics, and Accountancy (FBEA), Universiti Malaysia Sabah, Sabah, Malaysia
*Corresponding Author: [email protected]
Accepted: 15 September 2020 | Published: 30 September 2020
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Abstract: Based on the theory of human capital, education plays an important role in terms of being a signal for employer demand in selecting employees. Without this signal, the unexpected derange between employer and employee will happen. The issue of unbalance between supply and demand in labour market especially in some industries becomes a critical issue from the economic view. One of the concerns is about the number of labour supply from graduates have increased but the labour demand from the industries never be equal to the supply. This study was developed to answer the question related to the factors affecting the issue. The objective of this study is to analyse the relationship between human capital factors such as academic performance, skills, and experience with the issue of employability among a graduate in Kota Kinabalu Sabah. This study used a quantitative approach and a structured questionnaire as an instrument. Based on the audit firm employer perspective, the results show that there is a significant relationship between the human capital factors (academic performance, skills, and experience) with employability from the prospective audit firm employer in Kota Kinabalu.
Keywords: Human capital Factors, Employability and Audit Firm perspective
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The research is funded by the Ministry of Higher Education, Malaysia under FRGS Grant (FRG0377-SS-1/2014)
1. Introduction
There is no doubt that human capital factors especially education and training for knowledge and skills will upgrade people to be more productive and be able to contribute to industry and community (Loretta.J, 2015). Human capital is one of the important issues in Malaysia, either in service or other industries that are attending the retraining program for graduates. The issue will bring to the question why are these people being retrained when they just graduated? Are Malaysia is having unemployment issue or employability issues? Based on statistics, Labor force in Malaysia can be split into two which are local and foreign labourers. Foreign workers apply to foreign nationals who work in any field or industry in Malaysia. Beginning in 1982, the Department of Statistics' total work force was around 354,300. The overall rate of participation in the labour force was 59.9 per cent of this amount.
The statistics from the Department of Statistics (2018) tend to give that in Sabah, the labour market, especially in certain sectors such as manufacturing, mining, agriculture, and construction statistically represent a larger number of foreign employees compared to local workers.
In the current scenario, in 2018, Sabah has become the second-highest number of 1.8 million people employed. Overall, Labor Force Participation Rate (LFPR) of Malaysia has risen to 68.3 percentage points from 68.0 percent in 2017. The labour force participation rate of Sabah has risen in 2018 to 68.2 percent compared to the previous year. In terms of the labour force participation rate in Malaysia, Sabah is in third place. But the unemployment of graduates (about 112,000) remains a source of concern as the rate is the highest in Malaysia amid the mismatching skills needed from the industry perspective by the demand side. There are plenty of possible factors which may explain the continuous growth of the unemployment rates among graduate.
The rate of unemployment was 3.0 percent. The total labour force in Sabah was 524,300 peoples in 1992, which grew in 10 years by around 48 percent. In 1992, the overall labour force participation in this state amounted to 65.1 percent of the total labour force.
Unemployment means some people who are not at work, but who are available for and actively seeking work. This means they are fully qualified for the job they are looking for but due to a countries economic status they might not have a job. The unemployment issue for that extend is related to the issue of employability.
Employability is about being able to get a full-time job and keep it there. This means a labour market may have many jobs available but the people who are applying for the jobs are unskilled and not those they are unqualified. Then, based on the issue and definition, there are some questions such as are Malaysia graduated skilled and not getting a job or are, they unskilled therefore they are not be hired. Therefore, this paper aims to identify the relationship between human capital factors and employability from the perspective of the employer.
This study looking into the deep issue that focuses on mismatch graduates from higher institutions. Due to the lack of past research on the employability among the graduates based on employer perspectives, this study tries to fill the existing gap. The scope of the study only focuses on the audit firm employer as a respondent. The research area is only in Kota Kinabalu, Sabah. The large number of the audit firm in Kota Kinabalu would help in attaining many potential respondents. The main objective is to study the relationship between human capital factors and the employability of high education graduates from an audit firm perspective.
2. Literature Review
Employability of graduates is one of the current issues, based on a growing number of university graduates generated annually by institutions of higher education. Employers have recently been concerned about graduates' ability to work in a modern organisation, particularly their human capital. This concern predates the recent rapid expansion of higher education and the concomitant questions about the quality and abilities of graduates in the current globalisation, articulated in some quarters. The majority of the past researcher found the difficulty to defined and measure the concept of employability (Harvey, 2001; Pegg, Waldock, Hendy-Isaac & Lawton, 2012).
McQuaid et. al (2005) discuss that employability can, in a broad opinion, be seen as individuals' ability or human capital to move into new employment on the labour market.
Employability skills are the necessary support for the acquisition and retention of a career, as are work-specific skills, academic skills and a variety of attitudes and behaviours (Saterfield and McLarty, 1995).
Employability from an employer's point of view is the graduate's propensity to demonstrate attributes that employers believe will be important for the future successful operation of the organisation (While Harvey, 1997).
Lay Cheng Tan and Erika French-Arnold (2012) have indicated that many factors have a substantial effect on employability and among the factors individual (human capital) factors which include attributes (e.g., basic social skills), competencies (e.g., motivation, confidence), transferable skills (e.g., literacy, numeracy, problem-solving, communication, adaptability, team working skills), qualifications and educational attainment. However, at the end of their study, they concluded that academic qualifications are crucial but if not more important to employers, the skills and attitudes of job seekers are equally significant. A high grade point average is not in itself a guarantee of employment.
Based on the study conducted by Noor Azina Ismail (2011), found out the results or CGPA of particular unemployed graduates was to some extent lower compared to those who are obtained by the employed graduates. In contrast, the employed graduates had higher English proficiencies compared to unemployed graduates. This meant that based on the findings of her paper, she found out that graduates who have CGPA 3.00 and above are much easier to find their place to be employed, she also highlights that the graduates who fluent in English has the chances of gaining employment than those who are not proficient. This is also supported by the finding of Fisher (1998) based on his research on Denmark, noted that employers are also becoming less concerned about the field of study. The employers rather want bright graduates who possess good grades rather than their field of study. The employer uses the grades to filter the graduates during the recruitment process. This proves that academic performance is also used as one indicator for an employer to employed graduates.
Lee Harvey (2000) agreed that a degree might be a passport or permit into graduate employment. This situation was revealed that a level of human capital such as knowledge and intellectual ability is very important to get employed. However, this is no longer the case because of systemic shifts and the increase of graduate numbers. This meant that in the past years it is agreeable that academic qualifications important to be employed, but nowadays employers are looking for graduates who possess various skills and also the graduate working experience.
3. Methodology
Data in this study were collected by using a set of questionnaires on a specific population (HR department in an audit firm). Obtaining data from a specific population increase the credibility in obtaining accurate data collection.
Since the study is focusing only on certain criteria of the population which are the audit firms that exist in Kota Kinabalu and targeting the HR department (recruiting manager), thus the most suitable sampling method used in this study is the purposive sampling method.
Purposive sampling refers to a sampling procedure where a group of a subject that has certain criteria choose as a research respondent. This cause another subject in the population does not have the chance to be chosen as the respondent in the research.
The theoretical framework of this research is developed based on finding in the literature review. The framework also adapted from the model proposed by Nooriah Yusof and Zakiyah Jamaluddin (2015), the researchers has illustrated a model about the employability that has been proposed by Clarke (2008). The model proposed by them also likes the model suggested by Pool and Sewell (2007).
The model proposed by past research also included market factors and organizational factors as the factors that have a significant effect on employability. However, in this study the focus only on the individual factors as a proxy of human capital factors, whereby the researcher wants to identify what among the dimension of human capital factors has impacts on employability from the perspective of employers.
Figure 1.1: Proposed Model (Human Capital Factors and Employability)
Hillage and Pollard's (1998) widely cited the sense of employability as the ability of human resources to acquire initial employment, to retain employment, to switch between positions within the same company, to obtain new jobs if necessary, and (ideally) to ensure adequate and adequate work efficiency. However, McQuaid, Green and Danson (2005) indicate that employability remains a contentious term for its usage in both theory and policy, and has been used as both a primarily labour supply and a term of labour demand over the last century.
In this study human capital factors refer to the internal factors of the graduates themselves, it is consisting of the graduate's academic qualification and grades, their existing skills, and their work experiences. Academic excellence mention as proof of the potential of the educational practises to succeed, accomplish and outrival. Academic achievement has been associated with high grade attainment and superior performance. In this study, academic excellence refers to the CGPA or pointer obtained by the graduates. It is also referred to as the level of qualification achieved by the graduates whether they are diploma holders or bachelor’s degree holders. Skill refers to the ability to come from one's knowledge, practice, aptitude, and others to do something well, it is also defined as individual competent excellence in performance and expertise in a certain area. Work experience is any involvement that individual gains while working in a specific field or profession, but the appearance is commonly used to mean a type of volunteer work that is usually envisioned for graduates to get a feel for professional at work.
EMPLOYABILITY HUMAN CAPITAL
FACTORS
Academic Performance
Skills
Work Experience
4. Discussion and Conclusion
In this study, reliability analysis has been conducted during the pilot test this is to ensure that the measurement used in this study is standardized. Therefore, the questions used on each variable were assessed by using Cronbach’s Alpha to determine the questionnaire item reliability. Table 1.1 is presented as below to show that all variables have an acceptable Cronbach’s Alpa value that is greater than 0.6. The reliability test was tested using SPSS version 22.
Table 1.1: Cronbach’s Alpha Value for Variables
Variables Cronbach’s Alpha
Employability 0.607
Academic Performance 0.718
Skills 0.771
Work Experience 0.791
Figure 1.2 shows the T-values of each dependent variable to independent variable after bootstrap calculation using SmartPLS version 30, This is to see if the dependent variable has a significant relationship with the independent variables resulting from the relevant standard beta coefficient. The result indicates a significant relationship between each independent variable and the dependent variable.
Figure 1.2 Results of the Path Analysis (T-value)
Thus, to validate the proposed hypothesis in this study, the path coefficient between two latent variables is assessed. Based on the previous study made by Hair et al., (2011), the path of coefficient value needs to be at least 0.1 to be accounted for a certain impact within the model. Table 1.2 shows the result of the path analysis of academic performance, skills, and experience towards employability. The result was used to prove this study hypothesis 1 (H1), which, from the perspective of audit firms in Kota Kinabalu, whether academic success has a significant relation to employability. The result presented that academic performance has a positive standard coefficient beta (β) of 0.515 and the t-value was 6.531. This result indicates that there is a positive and significant relationship between academic performance employability. Therefore, hypothesis 1 (H1) in this study was supported.
The result of hypothesis 2 (H2), shows that skill has a positive standard coefficient beta (β) of 0.424 and the t-value was 2.966. This indicates that skills also have a significant and positive correlation with employability. Thus, hypothesis 2 (H2) used in this study were also supported. Hypothesis 3 (H3) is also supported.
Table 1.2 Hypothesis Testing on Independent Variable
Hypothesis Relationship Std Beta Std Error
T-value Decision
H1 Academic Performance
-> Employability
0.515 0.079 6.531 Supported H2 Skill -> Employability 0.424 0.096 4.428 Supported H3 Work Experience
-> Employability
0.254 0.101 2.443 Supported
This study examines the effect of academic performance on the employability of the graduates taking from the perspective of audit firms in the area of Kota Kinabalu, Sabah. The result shows that academic performance has a significant relationship with employability.
This implies that the employer does see academic performance as an indicator for graduates to be employed in their organization.
The analysis has confirmed that the findings proposed from past researchers Yusof, N., &
Jamaluddin, Z. (2015), and Marylyn Clarke (2008) were supported by the results found in this study. Academic performance is one of the dimensions that have a significant relationship with employability. Which based on the result in this study prove that from the audit firm’s perspective in Kota Kinabalu, the employer sees that the grade of the graduates (academic performance). This is also supported by Noor Azina Ismail (2011), where her findings found that those who are unemployed have a lower grade (CGPA) than those who are employed. The result also confirmed the CareerEDGE model that has been proposed by Pool and Sewell (2007).
Consistent with the findings from the previous study about the relation of skills with employability, the results found in this study indicate that skill has a relationship with the employability of the graduates from the perspective of the employers. This study confirms the findings of Noor Azina Ismail (2011) which highlight that graduate with good grades are not sufficient, they must have the necessary skill for them to be employed. The result also supported the employability model obtain from Yusof, N., & Jamaluddin, Z. (2015).
The result of this study show there is a significant effect of work experience towards the dependent variable. This is supported by the study made by Ruth Heyler and Dionne Lee (2014) which proposed that in higher education learning program should include working experience. Thus, not only the graduate will be equipping themselves with academic credentials and skills obtained during their university life, with a work experience regarding the grade or skills they have. They still have the chance to be employed if they have working experience, this is supported by the research made by Velden and Verhagen (2013).
This study is focusing on the relationship between the academic performances of graduates to their employability, taking account from the perspective of an employer which the audit firms around Kota Kinabalu. This study has managed to prove that the model and theory provided by previous literature/researchers have significant results, thus support the literature in which academic performance does have a significant relationship with employability.
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