# **_The Share of Employment Stock: Where Are Workers Employed in the Formal Private Sector?_**

Where do people work in Ghana’s formal private sector? Figures 2–3 show the share of the stock of employment and establishments by firm size and age, while Table 1 presents the share of firms and employment by sector and location.<sup>15</sup> Immediately, these figures shed light on the size distribution of firms in Ghana’s private sector. The vast majority of firms (over 90 percent) have fewer than 20 employees. The ES estimates that registered firms in Ghana are composed of microenterprises with 0 to 4 workers (63 percent); small firms with 5 to 19 workers (28 percent); medium firms with 20 to 99 workers (7 percent); and large firms employing more than 100 workers (2 percent) (Figure 2).<sup>16</sup> However, the minority of large firms in Ghana account for nearly half the entire workforce in the formal private sector. The employment stock distribution is concentrated in larger firms (47 percent), and roughly equally shared between microenterprises (14 percent) and small (17 percent) and medium firms (21 percent). Put another way, large firms in Ghana tend to be particularly big: in fact the average large firm employees nearly 300 full-time workers. This pattern runs counter to cross-country analysis that finds that in economies with lower income levels the majority share of employment tends to be found in SME firms (Ayyagari et al. 2014; Aga et al 2015). Rather this pattern more closely adheres to the skewness found in higher-income economies, where large establishments are few but predominate.

In terms of age, a plurality of firms are mature<sup>17</sup> — having been in operation for at least 10 years — however, a third of firms are also young start-ups, being under 5 years old. On average, most firms (43 percent) are “mature,” having been in business for more than 11 years, while 25 percent of firms have been operating between 6 and 10 years on average (“mid-age”). Young firms operating between 3 and 5 years represent 19 percent of firms, while start-ups (2 years) and new entrants (in operation for one year or less) represent 6 percent and 7 percent, respectively (Figure 3). The share of entrants and start-ups is higher in the service sector than in industry (14 percent and 9 percent, respectively), indicating lower entry costs in the service sector. This may be an indication that firm entry may be relatively robust, which

> 15 ES data are collected on an establishment-level basis. Only an estimated 1.6% of establishments in Ghana are estimated to be part of a larger firm, and so establishment and firm are used interchangeably.

> 16 The size categorization refers to the average number of permanent and temporary employees, based on reported and recall data.

> 17 As noted above, firms are classified by their age as of 2010. The reasons for this are twofold. First, as growth measures are considered the age of firms as of their first period is more appropriate; secondly, as the ES data rely on sampling from source lists that are often lagged by a few years, there can be an upward bias in terms of firm age as very young firms are frequently omitted. Using age as of 2010 ameliorates this concern. For firms that were founded after 2010, their age is considered <5. For employment measures, 2010 employment is set to zero.

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