Firm Productivity and Employment in Paraguay 2010 - 2014

Paraguay has achieved positive employment outcomes over the last decade, reflecting more jobs and improved average job quality, which together contributed to significant poverty reduction. Firms played a major role in creating these jobs, especially formal jobs. It is important to understand how firm performance has translated into employment, the nature of the resulting jobs, and the factors affecting these outcomes. Using firm-level datasets, this analysis explores the characteristics of firms that are growing or stagnating; the sectors into which new firms are entering or incumbent firms are expanding their operations; and the factors that may be helping or hindering firms to enter, expand, or increase their productivity. High rates of informality and evasion create a challenging private sector environment for firms, but even among formal firms, the prevailing structure is characterized by micro-firms that lack scale economies, are concentrated in non-tradables, have generally low productivity levels, and rely on unskilled employment. The analysis also finds a pervasive duality between micro-sized low-productivity firms on one end, and a small number of highly productive firms in concentrated markets on the other end. These results imply some important challenges for the continued development of a healthy, dynamic and inclusive private sector.