Adjusting to Skill Shortages:Complexity and Consequences

Skill shortages are often portrayed as a major problem for the economies of many countriesincluding the Australian economy. Yet, there is surprisingly little evidence about theirprevalence, causes and consequences. This paper attempts to improve our understandingabout these issues by using econometric methods to analyse the Business LongitudinalDatabase, an Australian panel data-set with information about skill shortages in small- andmedium-sized businesses during 2004/05. We use this information to: (1) explore theincidence of skill shortages and the business attributes that are associated with them; (2)identify which businesses face more complex skill shortages, as measured by the number ofdifferent causes reported simultaneously; and, uniquely, (3) examine how this complexityaffects businesses’ responses to skill shortages and aspects of their subsequentperformance. We show that complex skill shortages are more likely than simpler (singlecause)skill shortages to persist and to trigger defensive responses from businesses. Wereject the conception of skill shortages as a homogenous phenomenon, and demonstrate theimportance of distinguishing between skill shortages according to whether they have simpleor complex causes....