The effect of regional skill gaps and skill shortages on firm productivity

TY - JOUR

T1 - The effect of regional skill gaps and skill shortages on firm productivity

AU - Morris, David

AU - Vanino, Enrico

AU - Corradini, Carlo

PY - 2019/12/16

Y1 - 2019/12/16

N2 - 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 better reflect the idiosyncratic needs of the regional economic structure, 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 dataset 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 explicitly recognise the presence and characteristics of place-specific skills gaps and shortages.

AB - 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 better reflect the idiosyncratic needs of the regional economic structure, 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 dataset 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 explicitly recognise the presence and characteristics of place-specific skills gaps and shortages.

KW - skill gaps

KW - skill shortages

KW - regional productivity

KW - human capital

U2 - 10.1177/0308518X19889634

DO - 10.1177/0308518X19889634

M3 - Article

JO - Environment and Planning A

JF - Environment and Planning A

SN - 0308-518X

ER -