Employment, technology, and industrialization in Kenya: A study in development strategy

Abstract

In the recent past, the mode of job creation in Kenya has been very capital expensive--capital labour ratio being several times larger than capital per head of population. The result is that the rate of growth in employment has been very disappointing in spite of very impressive rates of growth of output and capital stock .. This study is primarily concerned with the issue of employment from the point of view of factor combination or choice of tech•• niques. Factor substitution and factor intensity receive searching inquiry. Data are considered for a) the whole economy and b) the manufacturing sector. The latter's data are analysed both aggregatively and disaggregated by firm size. We utilize a CES production function as developed by Phoebus J. Dhrymes to estimate both the elasticities of substitution between capital and labour and the homogeneity parameters. For an index of skill intensity (human capital) t we use labour value added per person engaged. Various indices of (physical) capital intensity are used: nonlabour value added per person employed, fuels and depreciation per person. Direct capital labour ratios are also made use of, whenever available. We also develop a model to discern what consequences befall when a firm maximizes profit subject to a given production technique. The conclusions arrived at are: that technological progress in Kenya has been labour-saving; that the elasticity of substitution between capital and labour, while roughly the same across firm sizes, is uniformly greater than zero, so that factor proportions can be altered by realigning _ factor prices; that investment allowances and accelerated depreciation are tantamount to a capital subsidy whose abolition would result in adoption of more labour intensive production methods than are new prevalent; that small scale firms are less skill intensive and less capital intensive than their larger counterparts, so "that promotion of the former would save on scarce factors of production; that factor prices confronting small firms are closer to accounting or shadow prices,so that small firms are more statically efficient than large firms; that the homogeneity parameters are roughly the same (less than unity) across firm sizes at the individual firm level, but at the aggregate level small firms display increasing returns and large firms diminishing returns suggesting that, while firm sizes should be frozen, expansion should accent on multiplication of small size enterprises; that many Kenya firms do not choose from all the universally available production techniques, and, by restriction to the capital intensive range, the results are diminished labour intensity and above minimum cost. One major recommendation is that institutional and educational measures should be undertaken to hasten the evolution and adoption of efficient labour intensive technologies.