The job quality-firm productivity nexus in the manufacturing sector: Panel data evidence from Ethiopia

Empirical literature about the nexus between different dimensions of job quality and productivity of firms is scant. Using a firm-level panel data of 400 food and leather producing firms in Ethiopia, this paper investigates the link between productivity and job quality. We found strong unconditional correlations between these two key policy variables. However, most of the correlations between non-wage job qualities and productivity disappear after we control for firm, manager and worker characteristics. Nevertheless, we found that firms which provide training for their workers have 30% higher productivity (total factor productivity, TFP) and earn 28% higher value-added per worker than firms which do not provide training, ceteris paribus. Similarly, raising the average salary of medium skilled workers by 10% increases TFP by up 4.7%, sales per worker by 2.7% and value-add per worker by 4.9%. On the other hand, a 10% increase in profit per worker (lagged) increases the salary of low and medium skilled workers up to 0.23% and 0.29% respectively, ceteris paribus, indicating that only a small share of productivity gains goes to workers – a common feature in developing countries. Similarly, a 10% increase in value-add per worker (lagged) increases the salaries of medium skill workers by about 0.29%. We do not find statistically significant links between the salaries of high skill workers and productivity. These results show that it is worthy (beyond the welfare of workers) for the stakeholders to improve the qualities of jobs.