April 2016

IZA DP No. 9923: Labour Productivity in Kenyan Manufacturing and Service Industries

Almas Heshmati, Masoomeh Rashidghalam

Labour productivity reflects a firm's ability to generate higher production or value-added. This paper analyses labour productivity and its determinants in the manufacturing and service sectors in Kenya. As the largest economy in East Africa, it is crucial for Kenya to have high labour productivity as it has strong implications for economic growth and welfare. The paper also provides practitioners with a better understanding of the state of labour productivity in the country. Using the World Bank's Enterprise Survey's database for 2013, we find that capital intensity and wage significantly and positively affected labour productivity. A higher female share in the labour force reduced labour productivity. We also found that training and education were associated with higher labour productivity. Reliance on technologies such as emails and websites for communication had a positive but insignificant impact on firms' labour productivity. On the basis of these observations we make a number of recommendations to promote higher productivity of labour.