Skill Use, Skill Deficits, and Firm Performance in Formal Sector Enterprises : Evidence from the Tanzania Enterprise Skills Survey, 2015

Inadequacies in Tanzania's education and training systems compromise the quality of workforce skills, giving rise to skill shortages, and constraining the operations and growth of formal sector firms in the country. This study addressed these concerns using data from a unique Enterprise Skills Survey that asked Tanzanian employers about the education, training, and occupational mix of their workforce, the skill gaps in cognitive, noncognitive, and job-specific competencies affecting their operations, and the strategies they are using to overcome these skill gaps. The study investigates the consequences for firm productivity of employers' choices about their optimal skills mix, and their strategies to mitigate shortfalls in skills supply. Compared with noninnovators and firms primarily serving the domestic market, exporters and innovators face greater skill demand and suffer from skill shortages that are more likely to constrain their operations in such areas as quality assurance, use of new technology, and introducing new products and services. In analyzing firm performance and its relation to skill mix, the study found that firms with higher shares of tertiary-educated workers are more productive; it found no impact, however, from secondary education and technical vocational education and training qualifications, possibly reflecting the universally acknowledged poor quality of secondary education in Tanzania. Employers use a range of strategies to address skill deficiencies, from hiring new workers, to training current workers in-house or externally, using high-skill expatriate workers, or outsourcing professional services. Almost all were associated with higher labor productivity. The exception, employer provided in-house training, had no measurable impact on productivity.