The Sole purpose of the study is to carve out the performance and structure of the small and medium scale manufacturing sector of Pakistan in terms of employment and productivity. The present study has incorporated the transcendental logarithmic cost function to apply on secondary, cross section data of the 3-digit forty nine SMEs of Pakistan. This functional form allows for and assists in exploring the true production structure of the firms. It has been revealed that structure of SMEs in Pakistan is based on Non-homothetic, Non- homogeneous, Variable returns to scale and Non-unitary elasticises. It has further been found that SMEs are overwhelmingly efficient as the pro- SMEs advocate them, in terms of employment generation and productivity, as capital and labour are found to be substitutes, which means employment generation is possible without the expansion in capital in a densely populated country like Pakistan. The conclusion suggests that although public policy should be targeted to provide parallel support to capital and labour yet distinguished favour should be given to labour to generate employment in SMEs of Pakistan. Key Words: Training, Technology and Information Tools
