The COVID-19 pandemic and the role of SMEs as innovators of sustainable inclusive employment

The Importance of SMEs as Innovators of Sustainable Inclusive Employment in Times of Pandemic and Beyond. New Evidence from Regional and Local Labour Markets.

The current COVID-19 pandemic has affected the world deeply. It remains a threat of unprecedented magnitude, putting even the strongest world economies into a state of emergency. The resulting economic crisis affects many sectors which particularly employ large numbers of SMEs and the self-employed (including restaurant, arts, entertainment and other leisure providers, transport such as taxis, accommodation and real estate, and tourist operators among others). As a consequence, some SMEs will cease to exist and others will have their development and operations significantly restricted.

However, for some SMEs it may spark a period of reinvention and adaptation, through taking advantage of opportunities generated by the current crises, including activities of competitors and changes in supply chains and consumer behaviour. The management and worker flexibility of SMEs can allow quick responses by finding innovative solutions to existing or emerging problems and developing competitive advantages through niche organisational and strategic capabilities, leading to increasing innovation and productivity.

The balance of the costs of the economic contraction due to the pandemic are unevenly spread between different types of employers, their employees, governments and the self-employed. In the UK, tax and welfare rules were already changed to support businesses and individuals through tax reliefs and the Coronavirus Job Retention Scheme, or furlough scheme (HM Revenue and Customs, 2020). Some 27% of the UK workforce and up to 80% in some industries are using the furlough scheme where government pays a high share of the wages for those whose jobs are temporarily stopped due to the pandemic (ONS, 2020).

Despite the difficulties this crisis imposes on SMEs, the EU, OECD and others suggest that it may also offer some opportunities for a more socially and environmentally sustainable (or “greener”) recovery, if investment in social and employment support systems, greener infrastructure and research is targeted suitably.

As we (McQuaid and Webb, 2020) discussed at the conference, the reengineering of the economy should reflection the employment practices that emphasise the benefits of flexibility over employment protections, work conditions and health and safety of the workers, but which tend to be widely utilised by employers in the competitive economy. The pandemic has highlighted long-term ebbs and flows of who takes the risk when the demand for workers changes suddenly. “Gig” or very short-term work has a long “unglamorous” history.

“Day labourers” in the last century where called “lump labour” because dock workers stood in a queue to be hired for a day at a time if they were needed. The historic struggles for job security seem to be repeated by “gig” workers who found themselves without security during the pandemic. On the one hand, given the uncertainty about present and future health and economic disruptions, there will be a greater desire for flexibility among employers (and potentially an aversion to taking on permanent staff). On the other hand, workers may seek more job and health security and a more effective unemployment safety net.

Major global economic challenges due to the COVID-19 pandemic create a state of insecurity for many SMEs, forcing them to quickly find new ways of working while achieving inclusive employment. Due to their adaptability and fast decision-making, SMEs might be suited to lead change in this dynamically evolving context. However, economies and societies more widely will need to seek ways to provide greater employment and economic security for those particularly vulnerable to economic shocks, such as that caused by COVID-19. The resulting socio-economic reengineering may well lead to a changed balance between flexibility work security among SMEs, the self-employed and perhaps across the wider economy.

There may well be further shocks to the economy due to short or long-term financial, demographic, environmental and other similar epidemiological pressures. A more resilient and sustainable economy and society is needed to identify and respond to these future risks. SMEs, especially those with ability to scale up and innovate, could play a major role in re-shaping of the future fairer socio-economic system that champions the creation of greater “decent work” as set out in the United Nations Sustainable Development Goals (ILO, 2018).

*Stirling Management School, University of Stirling
European Network on Regional Labour Market Monitoring – ENRLMM


HM Revenue and Customs (2020), Coronavirus Job Retention Scheme, available at:[July 2020].

International Labour Organization (ILO) (2018) Women and Men in the Informal Economy: A Statistical Picture. Available at–en/index.htm [10 May 2020].

McQuaid, R. and A. Webb  (2020) ‘The Importance of SMEs as Innovators of Sustainable Inclusive Employment: Some Issues Resulting from Shocks to the Economy Imposed by the COVID-19 Pandemic’, in: Larsen, C., Kipper, J., Schmid, A., and M. Ricceri (eds) The Importance of SMEs as Innovators of Sustainable Inclusive Employment (Rainer Hampp Verlag, Muenchen) pp. 33-45.Available at

Office for National Statistics (ONS) (2020), Furloughing of workers across UK businesses: 23 March 2020 to 5 April 2020, available at:[July 2020].

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