graduated from a Technical and Vocational Education and Training (TVET) college or can show proof of having experience in the construction sector can take a test to participate in the program. Successful candidates can establish an enterprise, either by themselves or together with other successful applicants. Individuals who failed the test are allowed to resit the test at a later date and may attempt to upgrade their skills by joining successful candidates in the project as apprentices.

Once firms are formed, they can register their interest in IHDP construction work with the Program Office, which is in charge of implementing the program. Existing firms are not allowed to compete for IHDP jobs unless IHDP capacity does not suffice. In theory, incumbent firms could attempt to join the program by having their employees take the test and regroup as a "new" firm. Anecdotal evidence suggests this is not very common. The IHDP does not create firms which can execute foundational and structural works but it does hire existing firms for these tasks. For the purposes of this paper, firms which can execute such tasks are referred to as contractors, while firms which cannot are referred to as constructors. The latter category consists predominantly of SMEs and is consequently of focal interest.<sup>2</sup> The IHDP provides wide-ranging support to firms participating in the program by i) providing and, in certain cases, subsidizing a place to work, ii) facilitating access to credit, iii) providing training and access to inputs (on credit), iv) subsidizing machinery for firms producing rebars (reinforcement bars) or hollow blocks, v) providing training to firms engaging in pre-cast beam and hollow block production and vi) awarding contracts to program firms. Not all newly created SMEs are awarded contracts but IHDP contracts are almost exclusively awarded to firms created by the IHDP (except for contracts assigned to contractors).

By providing these different types of support the program alters the factor prices different firms face, which in turn affect technology adoption and factor choices and thus labor demand. The program does not affect technology adoption or factor usage directly. The modeling challenge is to identify the impact of the IHDP interventions on labor demand and earnings and separate the effect of the program from differences between participants and non-participants not due to participation.

At this juncture, it is important to note that the unit of analysis in this paper is the firm, not the house being constructed. Our data enable us to assess the impact of the program on the technology and labor intensity of constructors and contractors separately. The labor demand of the housing construction sector as a whole may also be affected by the mix between constructors and contractors in the construction process, if these firms differ in their labor intensity and/or adopt different technologies. Unfortunately, our data do not enable us to rigorously assess whether, and if so to what extent, such substitution effects are occurring.

# **3. The Addis Ababa Construction Enterprise Survey (AACES)**

The AACES is a survey of matched firms and workers in the construction sector in Addis Ababa, designed specifically for the purpose of analyzing the employment creation impact of the IHDP World Bank (2007). It was conducted by the Ethiopian Economic Association in collaboration with the World Bank in December 2006 and early January 2007. It covered 240 firms and 971 workers, 241 of whom were casual workers. The workers' data contains detailed information on workers' earnings, their employment history, experience, skills, educational background, program participation, job satisfaction, motivation for choosing their current activity and on a number of socio-demographic characteristics including household characteristics and parental background.

The worker data will be considered in section 5, here we focus on the firm data. The sample of firms contains data on 103 non-program constructors, 92 program constructors, 17 non-program contractors and 28 program contractors. A program firm is defined as a firm which fulfils at least one of three criteria; i) having been created by the program ii) having received support from the program or iii) having worked for the program.<sup>3</sup> The firm-level data provide information on a rich set of firm

> 2 Conventionally, all firms with a contracting license grade - an indicator of technological capability - are referred to as contractors. Firms with a contracting license grade between 1 and 6 can execute foundational and structural works, while those with a license grade between 7 and 10 cannot. For expositional purposes we only refer to a subset of this group, namely those with a license grade between 1 and 6 as "contractors" in this paper.

> 3 In addition, there was one firm engaging in pre-cast beam production which did not meet any of these criteria

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