Incentives for SMEs to Invest in Skills

Abstract

Employers across the world are adjusting production processes as a consequence of the COVID-19 shock and the pressure of structural transformations such technological transitions, demographic changes or globalisation.In many instances, these transformations require employers to update the skills of their workforce via new hires or worker training.This challenging process is hampered by a range of market failures, in particular for micro, small and medium-sized enterprises (SMEs), which results in socially suboptimal investment in skills and justifies governments' intervention.Based on the analysis of the existing policy landscape and economic literature, this report identifies practices that were successful in supporting SMEs' investment in skills in different countries of the European Union.It describes the design and rationale of these instruments, while providing a critical assessment over their advantages and limitations.The report is structured around four chapters.Chapter 1 presents the economic rationale and scope for policy intervention to promote training by employers and SMEs in particular.The remainder of the report describes the most common tools that policy makers can use to support investment in skills by SMEs in skills.Some policies reduce the direct or indirect cost of reskilling (Chapter 2), while others develop the skills of managers and entrepreneurs, their awareness of the firm's reskilling needs, and their capacity to hire and train workers (Chapter 3).Chapter 4 looks at policies that leverage the firm's relationships with the training ecosystem, including other firms, education institutions and the public sector, to shape the firm's investment in skills.Chapter 5 concludes and identifies a number of features in common across the identified good practices.

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