Title: The impact of human capital and innovation on labour productivity of Malaysian small and medium enterprises

Authors: Rahmah Ismail

Addresses: Faculty of Economics and Management, School of Economics, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia

Abstract: Human capital theory postulates that investment in human capital will increase labour quality and eventually generates higher productivity in an organisation. In small and medium enterprises (SMEs), the quality of workers is still low due to lack of investment in human capital especially in terms of training; and this is the main cause of low labour productivity, hence, leading to weak firm's performance. This article aims to analyse the impact of human capital and innovation on labour productivity by utilising the data of 4,661 manufacturing firms of 2009 in Malaysia. In this analysis, human capital is measured by the ratio of number of professional and managerial employees; and technical and associate professional employees to total number of employees; and total expenses on training; while innovation is measured by total expenses on research and development (R&D) and on information and communication technology (ICT). The result shows that human capital and innovation play significant roles in increasing labour productivity in Malaysian SMEs.

Keywords: human capital; innovation; labour productivity; labour quality; small and medium enterprises; SMEs; manufacturing firms; training; research and development; R&D; information and communication technology; ICT; employees; Malaysia.

DOI: 10.1504/IJPQM.2018.094769

International Journal of Productivity and Quality Management, 2018 Vol.25 No.2, pp.245 - 261

Received: 05 Apr 2017
Accepted: 29 Aug 2017
Published online: 15 Sep 2018 *

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