Too Constrained to Grow Analysis of Firms' Response to the Alleviation of Skill Shortages

Skill shortages are a growing concern in the context of rapid technological change, raising the question of their cost for the economy and of the effectiveness of policies aiming to reduce them. This paper evaluates the effect of a French reform facilitating the hiring of immigrant workers with highly-demanded competencies on the firms that were constrained by the scarcity of these skills. The analysis is based on administrative data and applies a difference-in-differences strategy. Results show that the firms most exposed to the reform react by hiring more workers in tight occupations. This leads to higher growth in their revenues and value added, and generates some crowding-in of other types of employment. Conversely, productivity and capital stock do not react to the policy in the short run. Findings confirm that shortages in key-competencies significantly hamper firms' growth potential, while immigration appears to be a viable solution against them.