Effect of regional skill gaps and skill shortages on firm productivity

Abstract

This paper contributes to the literature on regional productivity, complementing previous education and skill-level perspectives with a novel approach analysing the impact of regional skill gaps and skill shortages. This allows us to reflect the idiosyncratic needs of the regional economic structure better, considering both the demand and supply side of the skills equation in localised labour markets. Controlling for unobserved time-invariant firm-level heterogeneity and other region–industry effects across a longitudinal data set for the period 2008–2014, our analysis reveals a negative direct effect of skill shortages on firm productivity. We further find negative spillover effects for both skill gaps and skill shortages in related industries and proximate regions. Results are also shown to be heterogeneous with respect to agglomeration levels and industrial sectors. Stronger negative effects are found in industries defined by a knowledge-intensive skill base, pointing to the loss of learning effects in the presence of skill deficiencies. Conversely, agglomeration effects appear to moderate the impact of skill deficiencies through more efficient matching in the local labour market. The findings presented thus suggest that policies aimed at improving productivity and addressing the increasing regional productivity divide cannot be reduced to a simple space-neutral support for higher education and skill levels but need to recognise explicitly the presence and characteristics of place-specific skills gaps and shortages.

Agglomeration externalities of fast-growth firms

“…This evidence is consistent with theories of trade-offs faced by firms clustering in thick local markets, between benefits linked to labour pooling and specialized suppliers, and higher costs of labour poaching and competition (Combes & Duranton, 2006). In this regard, labour poaching effects might be particularly relevant, given the skills shortages experienced in the UK, in particular in manufacturing industries (Calvo & Coulter, 2017;Haskel et al, 2005;Kemeny, 2017;Morris et al, 2019). In addition, this finding seems consistent with the recent evidence of 'superstar firms' in manufacturing industries, where rapid growth of mark-ups leads to an increased concentration of labour and skills in few fast-growing firms (Autor et al, 2017).…”

“…In this regard, the agglomeration of fast-growth firms could facilitate, on the one hand, the match between skilled workers and firms' requirements, or the flow of labour and skills from fast-growth to other firms within the same industry. However, on the other hand, a rapid increase in the agglomeration of fast-growth firms could also create negative spillover effects related to labour poaching, where tougher competition in the local labour market could draw the limited numbers of skilled workers available towards the most successful firms in the cluster, that is, the fast-growth firms (Coad et al, 2014b;Combes & Duranton, 2006;Morris et al, 2019).…”

A skill‐specific dynamic labour supply and labour demand framework: A scenario analysis for the Western Balkan countries to 2030

“…. Several studies corroborate this negative skill shortage-productivity nexus (Bennett & McGuinness, 2009;Haskel & Martin, 1993;Haskel & Martin, 1996;Morris et al, 2020;Tang & Wang, 2005). Skill shortages may also constrain investment and the adoption of new technologies, with negative knock-on effects on productivity (see, e.g., Foley et al, 1993 andWatts, 1994 for theoretical arguments and Forth &Mason, 2006 andNickell &Nicolitsas, 1997 for empirical evidence).…”

Antecedents of Technology Adoption by Manufacturing Firms in the UAE

“…There is a strong link between firm size and firm performance. The number of employees was also used to calculate firm size in (Morris, Vanino, and Corradini 2020). (Dosi, Guarascio, & Ricci, 2021) also used the number of employees as a measure of firm size and discovered that it was related to training and firm performance.…”