The expansion in higher education (HE) over the last twenty years and the extent to which the UK labour market has adjusted to employ an increasing number of graduates has raised numerous questions. The relationship between HE and the labour market has become an especially important topic of debate in the context of current discussions surrounding the graduate contribution to HE fees, concern about the decline of the graduate earnings premium and misallocation of graduate skills in the labour market (e.g. Elias and Purcell, 2004). Small and medium-sized enterprises (SMEs), traditionally non-graduate employment providers, have emerged as a possible source of demand for graduate skills. However, empirical studies investigating SME demand for HE graduates and graduate skill utilisation have reported mixed findings, and have highlighted the need for more research to be carried out in this area.

SMEs should not be overlooked – on average, they represent 99% of all firms, two thirds of all employment, and over one-half of all value-added in the OECD (OECD, 2010). In the UK, SMEs may have an additional vital role in the context of urbanisation and the related movement of graduates from northern UK regions towards the south (Hoare and Corver, 2010). SMEs are more evenly distributed around the UK than other large graduate recruiters, and may contribute to retaining regional skills and rebalancing the UK economy.

This research project will explore employee and employer perceptions of graduate skill utilization in UK SMEs which have recently started employing graduates. The conceptual framework regarding ‘perceptions’ (Belfield, 1999), will be developed more fully. One relatively consistent finding in the literature is that SMEs increase graduate recruitment with their size (e.g. Holden et al, 2007). Small SMEs in particular have been under-represented in empirical studies. This research will focus on businesses with fewer than 50 employees, in line with the EU definition of ‘small’ businesses. The role of small businesses in the UK should not be underestimated: they form 30% of private sector employment and just under 30% of private sector turnover in the UK economy (BIS, 2009), and are regarded as engines of economic growth (BIS, 2010).

Research questions:

·         What constitutes ‘graduate skills’ at the time of investigation, and has this changed from previous conceptualisations?

·         What are graduates’ and employers’ perceptions of graduate skill utilization in small companies? How do they compare and in what ways do they differ?

·         What is the evidence for the changing trends in small companies as new graduate employers? How, if at all, has the recent financial crisis affected graduate skill utilization in small businesses?

The issue of HE expansion and the focus on SMEs as a source of demand for graduates is not limited to the UK (e.g. Manninen and Hobrough, 2000). The findings of this UK study will contribute to a wider, European understanding of this development, which is particularly timely given the establishment of the EHEA following Bologna Process implementation and the international debate on expanding and financing the HE sector.

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