How Firms Adjust to Skill Shortages: Evidence from SMEs across European Countries

This paper examines how small and medium-sized enterprises (SMEs) respond to skill shortages and how they evaluate government support in addressing these constraints. We use firm-level survey data from the Global Strategy for Skills project covering SMEs in Germany, Switzerland, the Netherlands, and Estonia to analyse firms’ adjustment strategies and their policy preferences. We provide new cross-country evidence on both the intensity and composition of firm-level adjustment. SMEs in Germany implement the largest number of adjustment measures, while firms in Estonia rely on a more limited set of responses. Despite these differences in intensity, the composition of adjustment is remarkably similar across countries: SMEs primarily rely on training and local labour supply strategies. Migration plays a more limited role, particularly in the Netherlands and Estonia. We further show that SMEs’ policy preferences broadly correspond with the adjustment strategies they use. SMEs consistently express strong support for training-related policies, whereas support for migration policies is generally lower. Taken together, the results suggest that firms adjust to skill shortages along multiple margins, while their policy preferences broadly correspond to the relative importance of these adjustment margins across countries.