Graduate knowledge and skill utilisation in small firms

Further to the material on graduates’ skill utilisation discussed in Section 2.4.3, this section focuses on graduates’ skill utilisation in small firms. There have been few studies of

graduate skill utilisation in SMEs, and even fewer concerning small firms. The issue has been analysed either from the perspective of the employer (e.g. Kewin et al., 2010; Hart and Barratt, 2009; Hogarth et al., 2007) or from the perspectives of the graduate employees (Purcell et al., 2005; Purcell et al., 2004; King, 2003; Belfield, 1999, Nabi and

43 _{Pittaway and Thedham (2005) surveyed SME employer perceptions of graduates’ skills. Of all the} businesses surveyed, 36% employed graduates (N = 139, of which: 27 self-employed, 61 with 1-10 employees, 37 with 11-50 employees, and 14 with 51-200 or more employees).

50 Bagley, 1999). Nove et al., (1997) and Harvey et al. (1997, see Section 2.4.3.3) were notable exceptions, but these studies did not focus on small firms specifically, and did not provide a systematic analysis of whether and why skill utilisation differed between small and large businesses.

Most studies that had focused on skill use in SMEs have tended to treat the SME sector as a homogenous group, without focusing on the differences between micro, small and medium businesses, or by having just one dummy variable for a small firm (often defined in

different ways). The findings discussed here show a mixed picture. As discussed in Section 2.4.3, small firm size was associated with skill underutilisation (e.g. Dolton and Vignoles, 2000), which is further supported by Belfield (2000), Salas Velasco (2010), and OECD (2013). However, other studies have found some evidence that small firms do provide opportunities for using and developing skills and knowledge, although the findings are quite modest – ‘better than expected’, according to Arnold et al., (2002) – or that skill underutilisation is less likely (Nove et al., 1997, a difference in emphasis to skill utilisation being more likely). As will be shown, the main limitations of these studies are that they do not tend to compare skill utilisation in similar occupations for graduates in small and large businesses from the same graduate cohort, and of the studies that come closest to this, one does not conduct a multivariate analysis, and the other potentially suffers from recall bias. The main studies are discussed below.

In an economy-wide study by Nove et al. (1997),44 _{one of the key findings relating to} business size was that graduates employed in smaller firms were among the least likely to report under-utilisation of their skills – possibly because of more varied tasks or flexible work roles. There was also evidence that Arts and Humanities graduates were less likely to report skill underutilisation than graduates from other degree subjects, but such graduates were also more likely to go into jobs which did not formally require a degree (HECSU, 2010). However, the data were presented in cross-tabulation format, and no multivariate regression analysis was conducted, which limited the reliability of the findings. It could be the case that a combination of variables related to business size affected responses to skill utilisation, which could be accounted for using a regression model with multiple controls.

44 _{Nove et al. (1997) looked at recent graduates’ skill utilisation in the labour market by graduates’} and businesses’ characteristics (including degree subject, work experience, industry, and business size, although businesses with fewer than 25 employees were not included).

51 In addition, the Nove et al. study did not investigate why graduates in certain contexts were more or less likely to use their skills or how skill utilisation occurred.

Few studies focused exclusively on small businesses with between 10 and 49 employees, among those that had, micro businesses tended to be the focus of the research (Pittaway and Thedham, 2005, see Section 2.5.3; Greenbank, 2002). The studies have reported some limited but positive findings about graduates’ use of skills in small firms. In his study of undergraduate placements in two micro businesses (a printing company and a video store), Greenbank (2002) found that, prior to the placement, the students held negative

perceptions about working in micro businesses, related to poorer career opportunities and pay (see also Westhead, 1998), and underwent two contrasting experiences during the placement.45 _{This study illustrated that work experience in very small businesses was} influenced a great deal by management styles, although care should be taken in

generalising from these results to graduate employment as a whole due to the short-term, placement nature of the students’ work experiences. This study was also limited to very small numbers of first year students, and so the findings should be interpreted with caution.

Encouraging findings were also presented by Arnold et al., which showed that UK and Dutch graduates employed in SMEs were more likely to perceive having more freedom to “do things their way”, and potentially as a consequence of that, to develop their skills (2002, p. 490). While most of graduates’ expectations of aspects of work were exceeded by their experience, aspects relating to training and pay more frequently under-met than over-met expectations, in line with findings about perceptions of and actual levels of pay and training provision in SMEs (e.g. Sear et al., 2012; Kotey and Folker, 2007; Belfield, 1999).46 _{However, the study only looked at graduates’ perceptions of the opportunities for}

45 _{In the course of the placement, the students at the printing company felt that they were given} little direction or guidance in how to carry out their task and felt that the manager did not listen to their suggestions. In contrast, the students at the video store were set objectives for their task and were able to discuss them with the managers throughout the placement. At the end of the placement, both the students and the owner-manager at the printing company were dissatisfied with their experience, with the latter stating that he had expected the students to be better ‘trained’ (2002, p. 266, [quotation marks in original]). In the video store, the experience for both students and managers was positive: the students used their market research results to implement a marketing campaign and developed workplace skills, while the managers benefitted from the results of the campaign.

46 _{Arnold et al. (2002) looked at graduates’ perceptions of skill development, among other factors, in} SMEs, comparing findings from UK and the Netherlands. The study was based on a survey with 126

52 skill development in general, and did not look at skill utilisation in terms of which skills might be used. Furthermore the main sample was restricted to SME employers, although an unrelated and older sample of UK graduates employed in large firms was used as a comparison group (Arnold and Mackenzie Davey, 1994). The graduates also held a variety of occupations, but expectations match differences by different occupations were not presented. The relatively low number of respondents also prevented an in-depth multivariate analysis of variables other than size that may have affected graduates’ perceptions. Thus, further research is needed on this issue.

In contrast, Belfield (1999)47 _{found that working conditions, including pay and training,} were perceived to be of lower quality in SMEs than in large businesses. The conclusions were grim: “the rewards for and the utilisation of graduates in SMEs are sub-optimal compared to those in larger companies” (1999, p. 257). However, as the paper was published 15 years ago, it is possible that the SME environment has become more hospitable to graduates. The paper also focused on job satisfaction, rather than skill utilisation, a related but distinct concept.

A more recent paper looked at factors affecting the development of competences at university and their use at work among Spanish graduates (Salas Velasco, 2010) using the REFLEX study.48 _{This study comes closest to a comprehensive analysis of skill utilisation by} graduates in their early careers across the labour market. Salas Velasco found that being employed in large firms, and to a lesser extent, medium-sized firms, was likely to increase graduates’ perceptions that their competences were required for their job, relative to working in a small firm. While Salas Velasco’s research is close to the main research issues explored in this thesis, further research is still needed for two main reasons. First, as Salas Velasco pointed out, the graduates were asked about their competences five years after graduation, and could have developed some of these competences through their jobs and

graduates employed in SMEs in the UK and the Netherlands, looking at the extent to which graduates’ expectations of work were met during their early careers.

47 _{Belfield (1999) analysed graduates’ perceptions of working conditions in businesses by size, using} three relatively large-scale surveys: over 2,800 graduates and 600 undergraduates from one UK university, and over 12,000 graduates from across the UK. The business size groups used were: 25 or fewer, 26-99, 100-499, and 500 or more employees.

48 _{The REFLEX questionnaire asked graduates to what extent 19 different competences were} required in their current jobs and to what extent they thought they possessed those competences using a 1-7 scale.See Section 3.5.1.2 about addressing the ‘anchor problem’ using self-reported required and possessed levels of capabilities and the feasibility of using this approach in Futuretrack data.

53 other experiences, and not necessarily solely through a university education. This time gap adds a further problem of participant recall bias (see, for example, Fraser et al., 2007). Second, the data concern Spanish graduates only, which provides some suggestions towards a working hypothesis about graduates in small businesses in general, but more UK- based research is needed to explore the issue facing UK graduates in more detail.

The findings that skill utilisation on several different dimensions of skills and knowledge diminishes as firm size increases were also supported by the OECD (2013) Survey of Adult Skills (PIAAC). The survey found that skill use increased with firm size for ‘information- processing skills’ (reading, writing, numeracy, ICT, and problem solving) and for ‘co- operation at work’, however these studies did not specifically look at graduates’ use of skills and knowledge.

Thus, while some limited research of graduates’ skill utilisation in small firms has been conducted, there is a clear need for a systematic analysis of whether and why skill utilisation differed between small and large businesses, controlling for contextual factors and graduates’ characteristics, and employing quantitative and qualitative research methods to capture the multidimensional construct of skill utilisation.