Identifying Sources of Job Creation in Africa

This paper investigates the determinants of job creation among entrepreneurs in Sub-Saharan Africa using unique panel data from the World Bank Skills Towards Employability and Productivity surveys covering Ghana and Kenya. We construct a novel taxonomy of entrepreneurial transitions based on employment status at startup and survey time: nonemployer-nonemployer, nonemployer-employer, employer-nonemployer, and employer-employer firms. Our identification strategy exploits retrospective information on business characteristics and skill content while controlling for unobserved heterogeneity through detailed family background measures. We find substantial heterogeneity in entrepreneurial outcomes that challenges conventional wisdom about African enterprise development. Employer-employer firms demonstrate remarkable resilience to business environment constraints, being significantly less likely to perceive capital and energy supply constraints compared to nonemployer firms. Our mediation analysis reveals that skill content accounts for 62.6 percent of earnings differences between job-creating and non-job-creating entrepreneurs, with non-routine interpersonal skills explaining 97 percent of this indirect effect. Employer-employer firm owners earn 59.8 percent more than nonemployer-nonemployer counterparts, with skill content mediating 38.6 percent of this premium. Our results provide the first systematic evidence on skill-biased entrepreneurship in Africa, suggesting that targeted interventions focused on high-growth potential firms may be more effective than broad-based entrepreneurship promotion.