Notes

and the concentration of market power as a potential entry deterrent reinforce each other as forces inhibiting job growth.15 In addition, incumbent firms tend to have better access to infrastructure, finance, or both, compared with many potential entrants.

Furthermore, there are some indications that the observed phase of job growth might be coming to an end in Ethiopia, one such indication being that wages started rising steeply for all employers beginning in 2012.This rise probably marks a turning point at which policies aimed at promoting industrial job growth would need to include tools that help promote growth in the productivity of new and young firms in addition to tools that facilitate entry.

The situation in Côte d’Ivoire is one in which manufacturing job growth can no longer be sustained at current levels without policy interventions to boost poststart-up productivity. Unlike in Ethiopia, industrial wages in Côte d’Ivoire are not rising and do not show signs of picking up. Manufacturers in Côte d’Ivoire have been hiring at declining pay rates during the observation period, and average manufacturing labor productivity has been declining even faster, which has culminated in gross profit margins per worker being close to zero.

Reducing the cost of entry regulations, developing an effective competition policy, and improving access to infrastructure and finance for all categories of firms should be part of the policy toolkits that Côte d’Ivoire and Ethiopia adopt. However, it seems that neither country can sustain manufacturing job growth without the use of the second set of policies targeting growth in labor productivity in new and young establishments. These policies could take a variety of forms, such as in-school and postschool skills-development programs that help increase the supply of skills to those firms, enhance their capacity to adopt improved technology or develop or diversify into higher-value products, or improve their access to more reliable and cheaper transport and logistics systems and utilities. Although all manufacturing firms would benefit from such productivity-enhancing interventions, they would likely have the maximum impact on job growth only to the extent that they have a bearing on the rate of business start-ups and investment decisions that firms make after start-up to survive and establish themselves in specific industries.

Notes

1. Probably the best known and most recent international evidence for the absence of systematic size effects in job growth at the firm level is in Haltiwanger, Jarmin, and

Miranda(2013).UsingUScensusdata,thepapershowsthatjobgrowthwasprimarily driven by start-ups and young firms, with initial size playing no role in the process. In a related paper, Decker et al. (2014) report that business start-ups account for about 20 percent of gross job growth in the United States and that, all else given, younger firms have a higher share of aggregate job growth than older firms.

2. The literature on empirical evidence for the invariance of job growth with firm size extends from as far back as the 1980s to the present. It was initially focused on testing Gibrat’s Law (Lucas 1978; Sutton 1997) on establishment census data in the

United States and Europe. Examples are Evans (1987) and Hall (1987) on different sets of US data, Dunne and Hughes (1994) on data on the United Kingdom, and

Audretsch, Santarelli, and Vivarelli (1999) on Italian data. 3. Jovanovic (1982) offers this as an explanation of why younger firms grow faster. 4. Thedistinctionbetween“passive”and“active”learningismadeinPakesandEricson (1998), who propose that firms also invest actively to enhance their capabilities, which may make older firms grow faster. 5. This relates to models of firm dynamics that do not necessarily produce faster job growth in start-ups and younger firms but are consistent with that outcome. The models include the fact that firms continually update their production techniques through competitive diffusion, as described in Jovanovic and MacDonald (1994).

Hopenhayn’s (1992) model of firm entry, production, and exit decisions driven by simultaneous firm- and industry-level dynamics should be added to this category. 6. See Acemoglu et al. (2018) for an economic model laying out this argument. 7. The barriers to which Hsieh and Klenow (2014) refer reduce job growth by making larger firms less productive than they would be otherwise, thereby reducing aggregate manufacturing productivity. 8. This is about a fifth of the more than 600,000 new industrial jobs that were added to the nonfarm sectors of Ethiopia’s economy over 1999–2013 according to World Bank (2017). But the larger figure is based on the results of the latest labor force surveys for thatperiodandincludescasesofself-employmentandownaccountworkinmicroenterprises.Thesmallertotalhererelatesonlytojobgrowthinthelargerestablishments covered by the annual manufacturing census of the Central Statistics Agency of the government of Ethiopia. The manufacturing census targets a population of manufacturers defined by a minimum employment size threshold of 10 workers. 9. Inthisreport,thetermsenterprises, firms,establishments andmanufacturersareused interchangeably unless otherwise indicated. 10. For the period 1996–2010, there is a common establishment identification number, andthedatacanbetreatedaspanel.However,theestablishmentidentificationnumber changedinthecensusesafter2010,andthedatacanonlybeusedcross-sectionallyfor those years. Other researchers have attempted to construct the panel for the most recentyearsusingadditionalinformationsuchasestablishmentname,address,andso on. However, this data set is not yet available and is not used in this report. 11. Thistermborrowsafamousphrasefromaclassiccontributiontodevelopmenteconomics, Lewis (1954), to characterize a state of sustained job growth under structural change at a constant wage rate. 12. This observed pattern of capital intensity is also in line with recent findings on

Ethiopia by Diao et al. (2021). 13. See Barseghyan and DiCecio 2011 and World Bank 2004. 14. This is along the lines portrayed in the Melitz (2003) model. 15. SeeBertrandandKramarz(2002)forevidenceonreinforcingbarrierstoentrybased on a study of the retail industry in France.