Wages, employment and productivity in the manufacturing sector in Tanzania

This study analyses the relationship between productivity on one hand and wages, output and employment on the other hand, The analysis of the relationship is made using the theory of production via the Constant plasticity of Substitution production function. In order to see the empirical development in the relationship, extensive literature is reviewed. The study uses regression models which are estimated by Using the Ordinary Least Squares technique based on time series data on wages, output and employment. It is useful studying the relationship between productivity and the other variables because it gives the coefficient of elasticity b substitution between labour and capital, the parameter reflecting returns to scale and the elasticities of employment with respect to wage rate and output. All these parameters are useful since they provide some insights on the characteristics of the relevant production function and the production technology in the manufacturing sector. The study tests four hypotheses which are strictly based on the relationship. Our empirical results of the regression models confirm all the stated hypotheses. Basing on the empirical results; the study draws a number of implications which include among others, the plausibility of the constant returns to scale assumption, the inverse relationship between the demand for labour and the real wage rate and the non- applicability of the Leontief fixed proportions production function. In order to redress the problems of low absorption of labour and declining productivity in the manufacturing sector, the study suggests a number of challenging policy measures which policy makers on productivity and employment ought to consider. On one hand, the study calls upon the entrepreneurs to do away with the "follower complex" which has so far restrained the capacity of the sector to absorb labour while on the other hand the study argues the government to carry out significant rural oriented investments in order to reduce the overwhelming influx of people in the urban centres. Furthermore, the study recommends the need for proper skill training; strengthening of vocational schools and underlines the non expansion of capacity and concentration should rather be on circumventing the constraints to capacity utilisation in order to raise the rate of capacity utilisation and hence productivity.