GVA and employment terms. The productivity of the manufacturing sector remains very low – in fact, the lowest after agriculture – despite nearly trebling between 2005 and 2011. In terms of average productivity growth, four main sectors stand out in the past 5 years or so: mining & quarrying, manufacturing, construction, and trade.

<u>Table 6: Productivity by Sector</u>

||La|bor Pro<br>(‘000|ductivi<br>birr)<sup>*</sup>|ty<br>|<sup>Average P</sup><br>(|<sup>roductivity</sup><br>% per year)|<sup>Growth</sup><br>|E<br>E|mploymen<br>lasticities|t<br>|
|---|---|---|---|---|---|---|---|---|---|---|
||1996|1999|2005|2011|1996-99|1999-05|2005-11|1996-99|1999-05|2005-11|
|Agriculture|5.4|4.5|5.2|8.0|<br>-5.9|2.4|7.4|<br>-0.90|0.58|0.10|
|Mining & Quarrying|20.0|102.6|29.4|87.5|<br>72.6|-18.8|19.9|<br>-7.65|8.47|-0.03|
|Manufacturing|12.4|6.3|6.6|17.8|<br>-20.2|0.8|17.8|<br>12.92|0.85|-0.43|
|Electricity & Water|40.8|84.6|100.4|108.9|<br>27.5|2.9|1.4|<br>-0.41|0.44|0.80|
|Construction|22.3|22.8|22.5|40.4|<br>0.7|-0.2|10.2|<br>0.93|1.02|0.07|
|Trade|13.3|11.0|16.3|29.5|<br>-6.3|6.8|10.4|<br>2.27|0.05|0.19|
|Transport & Comms|58.2|48.4|77.1|95.1|<br>-5.9|8.1|3.6|<br>1.90|0.21|0.56|
|Other Services|15.1|25.5|28.5|36.7|<br>19.1|1.9|4.3|<br>-0.56|0.68|0.59|
|Total|7.1|6.7|8.0|13.7|<br>-1.7|3.0|9.3|<br>2.24|0.52|0.10|

* Constant 2010/2011 prices Source: Author’s calculations

Employment elasticities can provide useful information about the economy’s capacity to generate employment and can be a useful complement to productivity data. During periods of positive economic growth, employment elasticities between 0 and 1 indicate that there is both productivity growth and employment growth (see Table 14 in Annex 2). Higher elasticities in this range – i.e. towards 1 – correspond to more employment-intensive growth, while elasticities in the low positive values indicate strong labor productivity growth (Kapsos, 2005).<sup>14</sup> It is therefore important to evaluate economic performance beyond a simple ‘productivity’ lens.

In the late 1990s, the overall elasticity value was rather high, although it was accompanied by negative productivity growth – which is undesirable. The elasticity for the early 2000s compares positively with several countries in the region and was achieved together with fairly strong productivity growth. Perhaps unsurprisingly, employment elasticities have dramatically declined in the late 2000s. This is intrinsically related to the strong acceleration of economic growth and the slowdown in employment growth in that period. However, the values still fall within the ‘ideal’ range, which means that productivity growth was accompanied by employment growth. Nonetheless, it should be noted that employment growth is likely to be correlated with population (and labor force) growth and this information needs to be complemented by data on the quality of employment – e.g. the type of employment (wage vs. self-employment), level of earnings, and job security (see Annex 1).

> 14 Khan (2001) argues that employment elasticities should be around 0.7 in developing countries. However, African countries might require even higher employment elasticities – for any given rate of growth – due to strong labor force growth.

15