What value do Australian employers give to qualifications?

By Lee Ridoutt, Chris Selby Smith, Kevin Hummel, Christina Cheang Research report 30 May 2005 ISBN 1 920896 43 0 print; 1 920896 44 9 web

Description

This report is about employers and how they value and use qualifications in their business decisions. The research indicates clear differences in the value placed on and use made of qualifications by employers for different groups of workers and occupations. Qualifications are considered more important for higher-level occupations and employers use them predominantly to recruit new employees and to ensure regulatory compliance. Employers regard qualifications as a signal of potential for future learning and skills acquisition, not as a signal of immediate competence. Overall, employers drew a strong distinction between qualifications and experience, and favoured and valued the latter more in regard to many of their business decisions. The higher the level of enterprise change and innovation, the lower the level of value and use made of qualifications by employers. Also, small enterprises are more likely to be highly discriminating of qualifications and supporting development among their employees.

Summary

About the research

  • Employers value qualifications mainly for higher-level occupations and for recruiting new employees about whom they have otherwise limited information. Qualifications are also used to manage regulatory compliance risk, such as occupational health and safety. Employers see qualifications as less important in managing business risks, such as potential loss of profit, believing these risks require forms of control other than skills development/qualifications.
  • The particular industry sector does not seem to influence the way in which employers value and use qualifications, although the size of the enterprise does. Employers of larger enterprises tend to support a more 'comprehensive approach' to worker qualifications, while small business owners tend to be more discriminating when assigning worth to qualifications.
  • The type of enterprise also influences employer perspectives on qualifications. Enterprises undergoing structural and other change or those involved in highly innovative activities are less supportive of qualifications in their workers.

Executive summary

Purpose

What value do employers assign to qualifications? This study seeks to ascertain the overall level of importance employers place on the qualifications of their employees; whether employers value qualifications differently for new versus existing employees, by occupation classification and type of enterprise; the types of competence for which employers require formal recognition; and the decision-making processes employers adopted when assigning value to qualifications.

Method and scope

Qualitative research methods were initially used to determine employer views. Interviews were held with key informants in industrial associations, and focus group discussions were held with industry groups in metropolitan and regional locations. The outcomes were used to develop the survey instrument for the quantitative research.

The survey was initially conducted as a mailed questionnaire, but a poor response rate required results to be supplemented by a telephone interview survey. Some adjustment was required for the telephone survey; however, the data collected by telephone survey and mailed questionnaire were similar enough to allow some combined analysis. The total sample population from the combined surveys (150 enterprises in manufacturing, construction, service and transport) placed some limitations on analysis, and therefore the degree to which the results can be generalised. Due to sample size and potential sampling errors, caution must be exercised when seeking to apply these outcomes. The final sample population was fairly evenly represented across enterprise size categories (small, medium, large).

Key findings

First, although there was strong consensus between respondents that degrees conferred by universities and certificates and diplomas by registered training organisations were qualifications, there was only a limited consensus between respondent employers about what else constitutes a qualification. The great majority of the respondents view 'qualifications' as signified by some form of documentation.

While 90% of the respondent employers valued qualifications in managing at least one risk in their enterprise, less than 25% value qualifications unconditionally. Rather, qualifications were valued if they support business decisions or operations that add to the security and prosperity of the enterprise. Even those who valued qualifications as universally worthwhile, differentiated between circumstances with greater (or lesser) benefits.

Respondents made a strong distinction between qualifications and experience,the latter being more valued across a wider number and type of business circumstances. Often, the skills most valued are 'employability skills' (such as attitude, language and literacy, communication abilities and team work) or 'generic skills'.

Second, respondents were found to use qualifications differently by type of employee (new versus existing, by occupational classification), and by type of business risk they were attempting to manage. This qualification usage was influenced by a range of enterprise characteristics, such as their size, the business environment under which they were operating or the extent to which they were innovating enterprises.

Respondents accepted the importance of qualifications for professional, technical/trades and managerial categories of employees. Here, over 90% believe qualifications are important. This compares with 60 to 67% of respondents who perceived qualifications as important for operators and drivers, sales and clerical staff. Only 29% supported the need for qualifications for labourers. Nearly 70% of relevant employer respondents indicated that qualifications are important for plant operators (which suggests that industry training promotion efforts, or other factors such as regulatory requirements, have influenced outcomes in this area).

Respondent employers used formal qualifications most when planning for future skill and training needs, recruiting new employees (about 90% of respondents) and ensuring regulatory compliance (around 80%). Other types of human resource management actions, such as remuneration decisions and creating employee loyalty, were less influenced by the employee's qualifications. The respondents appeared to make a distinction between 'external' and 'internal' human resource management decisions. Planning for an enterprise's labour requirements, scanning the labour market, and recruiting to meet requirements, are 'external' human resource management decisions, since they involve engagement with forces and systems outside the enterprise. Qualifications in this context provide information to support decisions in otherwise information-poor situations.

Qualifications are also used by the respondent employers as part of managing their business risks. A list of the most prevalent risks was generated through the mailed survey and used during the telephone survey. Given the diverse enterprise population, there was a high level of agreement on the main business risks. The risks fell into two broad areas: 'compliance risk' (for example, in occupational health and safety, accounting, and other areas governed by regulatory requirements); and 'business' risk-potential loss of income or profit (for example, due to poorly made products, badly delivered services, poor customer service, loss of stock, and wastage of resources). Both areas were considered important by respondents, but it was argued that compliance risks were better controlled with a 'qualification', or through 'skills development', while the business risks were more likely to require other forms of control. For example, a higher proportion of respondents reported formal qualifications as important for managing legislative and occupational health and safety compliance risks (49% and 58% respectively), whereas only 16% and 12% respectively reported similarly for the next most highly ranked risks (insufficient insurance and loss of client or customer base).

Third, the different employer types value qualifications differently. Larger enterprises tend to support a more comprehensive approach to worker qualifications, predominantly to facilitate harmonious employee relations, to develop a learning culture in their organisation, and to develop the enterprise's 'intellectual capital' (Sexton 2003; Department of Industry, Trade and Resources 2000). Smaller enterprises tend to be more discriminating in assigning worth to qualifications and prefer a quick return on training investment.

In this study, the industry sector did not seem to significantly influence how respondents valued qualifications. However, there was a suggestion that classifying enterprises into two alternative industry categories-termed the 'old' economy and the 'new' economy-might be effective. In this categorisation 'new' economy refers to enterprises capitalising upon innovations (particularly in information and communications technology) and 'old' economy, those less so. This helps to explain the relationships found between the level of change in enterprises and the extent to which they were innovative, and the valuing of qualifications. Conventional wisdom presumes that substantial enterprise innovation and change would be associated with broad human capital investment (and high proportions of appropriately qualified staff). However, the findings here were that high levels of enterprise change and innovation were associated with lower support from enterprises for the value of qualifications among their employees. Perhaps these conditions translate into a demand for more 'just in time' type skills development, whereas the pursuit of qualifications is more long-term and strategic.

Finally, a small proportion of respondents across industry sectors, enterprise size and a range of other characteristics, probably less than 15%, consistently value skill and experience above qualifications. A similar proportion of respondents believed strongly in the value of qualifications as such. The remaining respondents, the majority, valued qualifications, but conditionally, based on their enterprise's particular circumstances.

From the VET planning and implementation perspective, the complexity of circumstances that confront employers is not always matched by a similar array of training products and services.

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