Characteristics of SMES Addressing Skill Shortages Through Adoption of Digital Technology

The changing economic environment poses many challenges for small and medium-sized enterprises (SMEs). The lack of adequate skills and the introduction of new technologies are currently two of the key problems. This paper examines both problems and their relationship. The focus is on the adoption of digital technologies as a substitution for human resources to solve problems with skill shortages. Business characteristics and external factors can influence business decision-making regarding the skills shortage solution. The paper aims to identify factors associated with the adoption of digital technology to address skills shortages while also considering the potential effects of public financial and non-financial support. The analysis is based on the firms’ level micro-data from Flash Eurobarometer 537 (2023) with more than 15,000 respondent SMEs from 27 EU countries and 8 non-EU countries. It uses a set of statistical and machine-learning techniques. Logistic regression and random forests are used to identify factors associated with the adoption of digital technology to replace human resources. The results suggest that SMEs that substitute human skills with digital technologies are mainly older firms and members of industry clusters. Non-financial public support and direct financial support are positively related to the substitution of human labor by new digital technologies. Our study brings several new findings, which allow us to propose policy recommendations for using digital technology to deal with skills shortages.