This paper exploits a unique panel of Ugandan manufacturing and service-sector firms (2008–2021) to investigate how firm-level economic growth translates into labour market outcomes. Combining administrative tax records, labour force surveys, and a purpose-built management practices module, we estimate a simultaneous growth-employment-wage system that identifies both direct and equilibrium effects.

Main findings:

We find that a 10% increase in real value-added at the firm level raises employment by 4.7% and average wages by 2.9%, with larger elasticities among exporters and firms in agglomerated regions. Growth episodes are skill-biased, increasing the share of non-production workers by 5.5 percentage points and compressing within-firm wage dispersion.

Dynamic decompositions:

Dynamic decompositions show that two-thirds of net job creation stems from incumbents rather than entrants, while labour reallocation from shrinking to expanding firms accounts for half of aggregate productivity growth.

Causal evidence:

Difference-in-differences exploiting variation in the staggered rollout of an investment tax credit corroborates these patterns, indicating that faster-growing firms crowd in labour rather than poach it.

Counterfactual simulations:

Counterfactual simulations suggest that raising the productivity of the bottom quartile of firms to the median would lift economy-wide employment by 6% and reduce under-employment by 2.4 percentage points.

Conclusion:

The results highlight the central role of firm-level growth dynamics in shaping inclusive labour market outcomes in low-income economies.