Which Firms drive Employment Growth in Sub‑Saharan Africa? Evidence from Kenya

Abstract

Using firm-level data from Kenyan manufacturing firms, we evaluate the hotly debated and popular view that small firms create the most jobs and are the primary source of employment growth. Using the methods of ordinary least squares and feasible generalized least squares, findings reveal that the relationship between firm dynamics and employment growth varies systematically across firm size and age. The results show that, although large firms appear to drive employment growth, this growth is driven by very young firms (0–5 years) that are large rather than the size of the firm per se. Results indicate that it is age that matters since very young firms (0–5 years) contribute the highest rates of employment growth than any age category. At the policy level, addressing soaring unemployment in the Sub-Saharan Africa requires creating a business environment that supports the growth of very young firms.