Labor Use Efficiency of Ethiopian Airports

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AbstractLabor use efficiency optimizes the minimum labor requirements and enables a reduction in the cost of production for a given output. This study analyses labor use efficiency of Ethiopian airports using an input requirement function approach. The study considers panel data for 13 international and domestic airports covering the period 2002–17. The variables used are productive labor hours as the dependent variable; workload unit of passenger and freight cargo transported as outputs; and average wage, capital intensity per labor hour; and energy consumption per unit of output as the independent variables. In this study the fixed-effects, KH-1995 model of separating persistent and transitory inefficiency (the alternative multi-step model), and maximum likelihood estimation (MLE) techniques are used for estimating the airports’ labor use efficiency. It identifies the aggregate value of passenger and freight cargo outputs, energy consumption per productive labor hour, and annual time trend as important determinants of labor use efficiency. Almost all these determinants’ variables except average wage are statistically significant in both KH-1995 and MLE models with minor differences in their value. The study concluded that labor use and airport output were complementary hence expansion of airport facilities is recommended. Capital, energy, and maintenance and repair inputs substitute labor use. The study also estimates the efficiency levels of airports based on three models. Their results vary according to their assumptions. The labor use time-invariant technical efficiency of the fixed-effects model’s estimation result is estimated to be about 47.52% on average during the study period. Technical efficiency is decomposed into time-invariant persistent and time-varying residual components. MLE and alternative multi-step models show that time-invariant persistent efficiency was on average 49.65 and 50.67% while the overall efficiency was 49.60% and 50.59% respectively. Despite these minor differences, many domestic airports performed relatively better compared to international airports. Thus, deployment of resources above the minimum requirements should be reconsidered as a source of cost reduction. Besides, airports having higher persistent inefficiency will continue to remain inefficient which may necessitate structural changes and revision of employment and labor use policies so as to increase their labor productivity in addition to long run and overall economic growth.KeywordsLabor useProductivityPersistent and transient efficiencyAirportsEthiopiaJEL ClassificationC12C13C14C23D24C33C5J23