JOURNAL OF ECONOMIC DEVELOPMENT 107 Volume 29, Number 2, December 2004 AN ECONOMETRIC MODEL OF EMPLOYMENT IN ZIMBABWE’S MANUFACTURING INDUSTRIES ALMAS HESHMATI AND MKHULULI NCUBE * MTT Economic Research and Gothenburg University This paper is concerned with the estimation of employment relationship and employment efficiency under production risk using a panel of Zimbabwe’s manufacturing industries. A flexible labour demand function is used consisting of two parts: the traditional labour demand function and labour demand variance function. Labour demand is a function of wages, output, quasi-fixed inputs and time variables. The variance function is a function of the determinants of labour demand and a number of production and policy characteristic variables. Estimation of industry and time-varying employment efficiency is also considered. The empirical results show that the average employment efficiency is 92%. Keywords : Labour demand, Variance, Efficiency, Manufacturing, Industries, Zimbabwe JEL classification: C23, C51, D24, E24 1. INTRODUCTION The objectives of this paper are threefold. First, it is concerned with estimating an employment relationship. Second, in coming up with an employment relationship we seek to account for the variation in employment. Finally, the paper addresses the issue of employment efficiency. The focus is on Zimbabwe’s manufacturing industry. This is an important area of research considering that the sector has evolved through a series of economic regimes and policies mostly of an experimental nature and with unknown expected outcomes. The manufacturing sector in Zimbabwe is well developed and diversified by African standards. It is one of the main employers, accounting for 16% of formal sector workers. It contributes almost a quarter of gross domestic product. In the past three decades the sector has evolved through three major economic regimes i.e., (i) * We would like to thank an anonymous referee for valuable comments and suggestions improving the paper.