AI adoption and workforce change in SMEs

Ben Etheridge, David Bharier and Paulo Morais

No 2026-01, ISER Working Paper Series from Institute for Social and Economic Research

Abstract: This paper investigates Artiï¬ cial Intelligence (AI) adoption and its labour market conse-quences among UK small and medium enterprises, using novel data from the British Cham-bers of Commerce Business Outlook Survey, collected in early 2026. AI adoption is increas-ingly widespread, with over half of responding ï¬ rms currently using AI, up from around a third in 2025. Most users rely on generic tools such as ChatGPT or Copilot, but around one in ten ï¬ rms have adopted bespoke AI implementations. We ï¬ nd that bespoke adoption in par-ticular is associated with a coherent bundle of workforce adjustment. Approximately one-ï¬ fth of bespoke users report stafï¬ ng reductions attributable to AI, and bespoke adopters are roughly three times more likely to have restructured job roles. Restructuring is in turn strongly associated with headcount reductions and shifts in skills requirements. Surprisingly, ï¬ rms investing in AI-related training are signiï¬ cantly more likely to anticipate headcount reductions than those not investing in training. We also ï¬ nd that current AI users are substan-tially more optimistic about future productivity gains than non-users. Our ï¬ ndings provide a novel ï¬ rm-level picture of how SMEs are reorganising work, adjusting workforces, and in-vesting in skills in response to AI.

Date: 2026-03-18
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