Who Benefits from Promoting Small and Medium Scale Enterprises? Some Empirical Evidence from Ethiopia

This paper analyzes the Addis Ababa Integrated Housing Program (AAIHDP), an active labor market program attempting to tackle the severe housing shortages and high unemployment prevailing in Addis Ababa. It deploys labor-intensive SMEs to construct low-cost condominium housing using technologies novel for Ethiopia. The hypothesis is that small firms create more jobs per unit of investment, being more labor intensive. Jobs thus created are concentrated among low-skilled people. The study assesses the program's impact on technology and labor intensity of contractors. A survey, using data representing all registered construction firms in Addis Ababa, assesses the program's success in biasing technology adoption in favor of labor, and thereby contributing to poverty reduction. The study found that technology of program firms is not significantly different from that used by firms outside the program. Findings include:

• Program firms are not more labor intensive than non-program firms;
• Program participants enjoy an earnings premium, and tend to be relatively well-educated;
• Earnings premium is heterogeneous and highest for those at the bottom of the earnings distribution;
• Program is unlikely to have resulted in a higher level of labor demand.