Analysis of employment in small scale industries of Ethiopia, Addis Ababa June,

Emphasis is often placed on the promotion of small scale industries in developing countries, including Ethiopia, as a means of creating large employment possibilities. This focus raises questions about the role of small scale industries in alleviating the employment problem of developing countries. Do flexible capital-labour substitution possibilities exist in small scale industries so as to allow small scale industries to employ a growing number of persans? Are small scale industries efficient utilizers of resources? More specifically, do small scale industries generate productive and remunerative jobs? This study goes someway towards answering the above questions. The variants of the Constant Elasticity of Substitution (CES) production function are fitted in order to examine the labour absorptive capacity of small scale industry. The results tend to show the existence of limited scope for factor substitution possibilities in small scale industry. The Cobb-Douglas production function is also fitted in
order to test whether employment in small scale industry was productive or not. The results indicate the existence of
disguised unemployment, that is, a situation where workers appear to be employed but in fact are not contributing to the
net social output. In order to have insights into the remunerative capacity of small scale industries, the average payments made to different categories of persans engaged in small scale industries is compared with the official minimum wage rate as
well as with the poverty line estimated for Ethiopia. According to the estimates, a significant proportion of the labour force has been earning inadequate incarne.