Labour productivity in African manufacturing: Does the level of skills development matter?

Motivation This article provides the first comprehensive evidence on the relationship between skills and labour productivity among manufacturing firms across Africa. It makes two contributions. First, we re‐examine the relationship between skills and labour productivity using nuanced firm‐level data. Second, we examine whether the relationship between employee skills and firm productivity varies by size and age of the firm. Purpose This paper poses two questions. What is the relationship between skills and labour productivity using nuanced firm‐level data? Is the relationship between employee skills and firm productivity mediated by firm size and age? Approach and Methods We used the World Bank’s Enterprise Survey data and employed the pooled Ordinary Least Squares estimation. Owing to endogeneity concerns, we used Instrumental Variables, where country‐sector‐size averages instrument for high school and university education. Propensity Score Matching was used to estimate the effects of training. Findings We find that the effects of high school and university education are higher among small and young firms respectively. Training is positively associated with labour productivity, particularly among older and large firms. Policy implications Overall this article highlights the importance of skills development in Africa’s aspiration to boost manufacturing. Key to this is encouraging schoolchildren to complete the education cycle. It helps too if employers can identify the level of education that suits their needs for skills, given firm size and age. They need to identify skill gaps, then match training to the skills employees require.