Labor-Use Efficiency in Kenyan Manufacturing and Service Industries

Abstract

This study uses the labor-use requirement model to estimate labor-use efficiency of Kenyan manufacturing and service sectors. It also studies the determinants of labor-use efficiency. The data are obtained from the World Bank’s Enterprise Survey (ES). The Cobb–Douglas functional form of labor-use frontier estimates shows that wages, sales, capital, fuel, and electricity affected the amount of labor used in Kenya. The determinants of labor-use efficiency were the manager’s experience, female share, labor training, education, and obstacles. The results show that the estimated firm labor-use efficiency ranged from 0.14 to 0.87 with a mean labor-use efficiency value of 0.66. According to the results, most of the firms operated within the labor-use efficiency range of 0.70–0.80 suggesting that there is space for improvements in labor use of 20–30% as compared to the firms with best labor-use practices.