Determinants Of Labor Productivity In Kenyan Manufacturing Firms

Abstract

Labor productivity is key in determining a country’s economic growth and development. Using firm-level cross-sectional data from the Kenyan manufacturing sector, the aim of this paper is to investigate the determinants of labor productivity. The study used Ordinary Least Squares to estimate the model. The main determinants of labor productivity are capital intensity and human capital which include education of workers and training. Hiring workers with higher education leads to higher labor productivity. Capital-labor ratio is also an important determinant of labor productivity. Other important determinants of labor productivity are firm size, foreign ownership of the firm, location of the firm dummy, number of managers hired and the export status of the firm. These findings have crucial policy implications for increasing competitiveness in the manufacturing sector. Firms can realize higher labor productivity by hiring workers with higher education, creating a conducive environment for foreigners to invest, as well as increasing their stock of physical capital.