A Mortar Board Does Not Guarantee Employability

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Degrees are fine and good, but technical and communicative skills are just as important.

The Malaysian Education Blueprint 20152025 (Higher Education), or MEB (HE), launched on April 7, 2015 sets out a new vision for the development of higher education in Malaysia.[1] There are ambitious plans to raise student numbers from around 1.4 million in 2012 to 2.4 million by 2025.

Currently, the private sector accounts for nearly half of higher education students and more than half of academic appointments in Malaysia and is expected to grow at 5.6% per annum under the MEB (HE), to overtake the public sector in terms of numbers and resources by 2025.

The MEB (HE) has a number of key policy reforms which many people view as a significant shift towards vocationalism and away from scholarships. Higher education is thus being increasingly viewed as a step towards better employment, rather than as a way of self-improvement through learning, reflection and personal growth.

Within this context, the higher education research programme at Penang Institute has conducted a study to address the question: does the investment return on higher education justify a shift towards a more vocational approach?

Why the Shift to Vocationalism?

One of the main drivers of the push for higher education institutions to focus more on vocationalism is the high level of graduate unemployment and underemployment which the country is facing.

Table 1 shows the general levels of employment, unemployment and underemployment for Malaysian graduates six months after graduation.[2] Economic Planning Unit statistics for 2015 report youth unemployment at 455,000, or 8.8% of the population aged between 20 and 24 years, of which 161,000 (35%) are graduates.

Overall unemployment in Malaysia stands at 3.2%, according to the Department of Statistics Malaysia, whereas youth unemployment is 6.7%, according to the World Bank.

Even for those who are able to find work, the jobs that they do may not require higher education qualifications. According to the MEB (HE), around 45% of recent graduates earned RM1,500 or less.[3] Such is the concern about unemployment and underemployment that a national policy plan for graduate employability has been devised by the Ministry of Higher Education Malaysia.[4]

Is Vocationalism Justified?

According to industry evidence, poor workplace preparation in higher education is a main cause of low graduate employment.

For example, a survey by Grant Thornton in 2014 reported that 62% of Malaysian firms have difficulty finding skilled workers, and 48% identify lack of talent as a constraint for future growth.[5]

Another recent survey by Jobstreet in 2015 cited the main reasons why employers do not hire recent graduates as unrealistic salary expectations (68%); poor English (65%); choosy about job/company (60%);

poor communication skills (60%); and poor character/attitude (58%).[6] In the same survey, leadership skills (39%); high academic scores (25%); extracurricular activities (20%); and volunteering (16%) are characteristics sought after by companies.[7]

Not Just a Local Issue

High graduate unemployment and underemployment is not unique to Malaysia but is a general trend in many countries. According to the Organisation for Economic Co-operation and Development (OECD), graduate unemployment in China may be around 30%, although official statistics understate this. In the Middle East, graduate unemployment is between 20-30%, in Greece 19.4% and Spain 14.9%. The lowest graduate unemployment rates are seen in Norway (1.8%), Germany (2.4%) and the Czech Republic (2.5%).[8]

Care should be taken when looking at these statistics; for example, in the UK, recent graduate unemployment was 11.9% six months after graduation, but fell to 3.9% three years after graduation, compared to 9% for non-graduates.[9]

This in part is due to changes in the demand for degree-level workers in the labour market. For example, in the US, only 20% of jobs required a bachelor’s degree in 2010, whereas 43% required a high-school education, and 26% did not even require that. Meanwhile, 40% of young people in the US study for degrees.[10] Other more recent research has also identified a secular decline in demand for knowledge-intensive workers requiring a degree since 2000.[11]

Automation of knowledge-intensive jobs may be a key factor. Carl Benedikt Frey and Michael Osborne in The Future of Employment suggest that over 47% of existing jobs are under threat from automation. Most likely to be automated are knowledge-intensive but repetitive, routine jobs such as accounting and auditing, insurance underwriting and credit analysis. Least likely to be automated are hands-on jobs in hospitality and services, and in public services such as firefighting – neither of which require higher education qualifications.[12]

Many also question the value added of a university education in more general terms. Research in the US has suggested that after two years in university, 45% of students showed no significant improvement in their cognitive skills. After four years, 36% of students had not improved in their ability to think and analyse problems, and in some courses, such as business administration, students’ cognitive abilities actually declined in the first few years.[13]

A recent YouGov survey showed 37% of UK employees think their jobs make no meaningful contribution to the world at all.[14] A separate survey in the UK in 2016 reported that 49% of university graduates believe they could have achieved similar income and career goals without going to university, and 37% regretted higher education because of the debt level on graduation.[15]

Investment vs Returns

So if we are moving towards a more vocational system – where the content of the curriculum will be governed by its occupational or industrial utility, and graduates judged by their marketability as human capital – then is this investment worthwhile?

To evaluate this, we look at a number of indicators: is there a wage premium between graduates and non-graduates? How long does it take to pay off the investment in human capital development? How does the investment period and return compare between graduates and non-graduates?[16]

By comparing typical salaries for various types of study, we found that new graduates can generally earn a premium above non-graduates in similar types of work within their first year of work. However, as Table 2 shows, this varies considerably. Subjects such as health (121%); ICT (65%); accounting (47%); and engineering (47%) lead in starting salary premia, whereas graduates with service industry degrees (-12%) and general degrees (-12%) have the lowest starting premia, and earn less than non-graduates when they start their careers.

This changes over time as work experience and industry opportunities begin to play a bigger role. After five to seven years, postgraduate and professional qualifications are also more commonly required to achieve higher salaries. After 10 years, service industry and general degrees (149%) have the highest premia, followed by social science (100%) and ICT (98%) degrees. Those choosing education (-21%) and health (-6%) fall below non-graduates in basic pay terms.

The Payoff

When entering higher education, students make an investment in terms of fees, but they also forego

income during the study period, which is also a cost to their investment decision. In order to look at the payoff period we calculate the net present value (NPV) of the investment based on expected returns (salaries) after graduation. For an investment to be worthwhile in purely market-based terms, the NPV should be positive over a preferred investment horizon.Table 3 shows the number of years it takes for a positive NPV to be generated. The calculation of the NPV for expected returns on various degree programmes shows that graduates face a long haul before they see any return on their investment.

For graduates of local public universities it will take around four years after graduation to recover their costs, which is around nine years after they leave school. For private universities, it will take around five years from graduation and 10 years from leaving school, while those attending foreign branch campuses can take up to 11 years from school to break-even in study costs.

For more expensive and longer study period degrees in health, education and engineering, the payoff periods are longer. Medical graduates from foreign branch campuses can take over 10 years from graduation, or more than 15 years from leaving school, before they break even in financial terms.

Although most degree programmes break even between four to six years after graduation (or eight to 11 years after the end of schooling), in fact it is around 10 years after graduation before they catch up with the investment return earned by nongraduates.

Some subjects such as health and engineering take longer than this because the courses tend to be longer and costs tend to be higher. Graduates of public universities catch up earlier because costs are lower, but graduates of foreign branch campus take more than a decade to catch up with school leavers in terms of investment return, because tuition fees are very much higher.

Conclusion

Using a purely market-based approach, investment in higher education offers a mixed picture. While in

most cases there is a premium on graduate salaries over those of school leavers in similar jobs, in some cases school leavers still have a premium over graduates – at least at the start of a graduate’s career.In the short term, better salaries appear to be associated with vocation-oriented courses, such as accountancy, but in the long term more general subjects, such as the social sciences, appear to provide a higher premium.

In investment terms, it can take a long time for higher education to pay off – graduates can be in their mid-30s before they see a better return overall compared to non-graduates. Students from public universities have a significant advantage over those from the private sector, mainly due to lower costs. Graduates from foreign branch campuses may not recover their higher investment costs for more than a decade after graduating.

In many cases – applying a purely vocationalist assessment – it would be better to start work straight from school and invest the savings in an investment account, rather than study for a university degree.

  • [1] Kementerian Pendidikan Malaysia, Malaysian Education Blueprint 2015-25 (Higher Education) (Putrajaya: Kementerian Pendidikan Malaysia, 2014).
  • [2] Many university heads, particularly in the private sector, dispute the ministry statistics and point to their own data, which shows much higher employment rates.
  • [3]Ibrahim Mohamed Dahlan et al. “Kajian Keberkesanan Program-program Keusahawanan di Institusi Pengajian Tinggi,” (Research grant, Universiti Malaysia Kelantan, 2012).
  • [4] Kementrian Pendidikan Tinggi Malaysia, National Graduate Employability Blueprint 2012-17 (Putrajaya: Kementerian Pendidikan Tinggi Malaysia, 2012).
  • [5] “High Ratio of Jobless Youths to Overall Unemployment in M’sia: World Bank,” New Straits Times, June 28, 2014, http://www.nst.com.my/ news/2015/09/high-ratio-jobless-youths-overallunemployment-m%E2%80%99sia-world-bank.
  • [6]Jobstreet, “Employers: Fresh Graduates Have Unrealistic Expectations,” Jobstreet.com, December 8, 2015, http://www.jobstreet.com. my/career-resources/employers-fresh-graduatesunrealistic-expectations/#.VzzvduRXw20.
  • [7]A report for TalentCorp by the World Bank in 2014 further identified as another relevant factor employers’ unwillingness to offer the level of compensation needed to meet the expectations of recent graduates and attract the required talent.
  • [8] Organisation for Economic Co-operation and Development, OECD Employment Outlook 2015 (Paris: OECD Publishing, 2015).
  • [9] UK Department for Business, Innovation and Skills, Graduate Labour Market Statistics 2015, (London: Department for Business Innovation and Skills, 2015).
  • [10] Alexander Cockburn, “The Myth of the Knowledge Economy,” Counterpunch, March 23, 2012, http://www.counterpunch.org/2012/03/23/ the-myth-of-the-knowledge-economy/.
  • [11]Paul Beaudry, David A. Green and Benjamin M. Sand (2013) “The Great Reversal in the Demand for Skill and Cognitive Tasks,” Journal of Labor Economics 34, no. S1 (2016), S199-S247.
  • [12]A report for TalentCorp by the World Bank in 2014 further identified as another relevant factor employers’ unwillingness to offer the level of compensation needed to meet the expectations of recent graduates and attract the required talent.
  • [13] Organisation for Economic Co-operation and Development, OECD Employment Outlook 2015 (Paris: OECD Publishing, 2015).
  • [14] UK Department for Business, Innovation and Skills, Graduate Labour Market Statistics 2015, (London: Department for Business Innovation and Skills, 2015).
  • [15] Alexander Cockburn, “The Myth of the Knowledge Economy,” Counterpunch, March 23, 2012, http://www.counterpunch.org/2012/03/23/ the-myth-of-the-knowledge-economy/.
  • [16]Paul Beaudry, David A. Green and Benjamin M. Sand (2013) “The Great Reversal in the Demand for Skill and Cognitive Tasks,” Journal of Labor Economics 34, no. S1 (2016), S199-S247.
Dr Geoffrey Williams was a visiting fellow at Penang Institute (2015-2016) specialising in higher education management. He was deputy vice chancellor at Universiti Tun Abdul Razak and professor in the Graduate School of Business. He is founder and director of his own education company, the Academy of Responsible Management, and is a member of the Board of Studies, Faculty of Industrial Management, Universiti Malaysia Pahang. He is currently a professor in the ELM Graduate School at HELP University.



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