Is Small Beautiful? Small Enterprise, Aid and Employment in Africa

TLDR

Aid providers often describe small firms as “job creators.” The study investigates the types of jobs small firms create and proposes that aid should target constraints to grow firms of all sizes for better employment. Improving the investment climate and new programs to increase firms’ capabilities—such as management training—offer greater prospects for employment creation. The study finds that small and large formal sector firms create similar net job numbers, but small firms have higher employment turnover and lower wages.

Abstract

Abstract Aid providers often describe small firms as ‘job creators’. But what types of jobs do they create? Drawing on enterprise survey data for nine African countries and panel data for Ethiopia we find that small and large formal sector firms create similar numbers of net jobs. Small firms, however, have much higher turnover of employment and pay persistently lower wages. To create more ‘good’ jobs aid should target the constraints to the growth of firms of all sizes. Improving the ‘investment climate’ and new programs to increase firms' capabilities—through, for example, management training—offer greater prospects for employment creation.