Link between lay-offs and wages in Kenya

After the Covid-19 numbers, the other closely followed figures at this time are those of job losses due to the economic impact of this disease. FILE PHOTO | NMG After the Covid-19 numbers, the other closely followed figures at this time are those of job losses due to the economic impact of this disease.

Recent Kenya National Bureau of Statistics (KNBS) data showed that more than 770,000 youth lost their jobs in the first three months of the year, more than the country created in 2019.

We are yet to see the numbers for the second quarter that should be worse because of the negative consequences of the lockdown and restrictions to the economy.

There were already a number of A mid-sized firms struggling to pay salaries of March. The formal sector has been heavily hit by the economic impact of Covid-19 despite the conventional understanding that they are safer bets in employment tenure.

A recent report by Scanad has it that more than half of employed population have received a salary cut and an estimated 435,000 have lost jobs.

But a keen watcher of Kenya’s labour market will not be surprised by this unfolding. Kenya’s formal labour market is inflexible and unstable.

First, salaried wages are competitive but when weighted against productivity with peer economies, productivity output is lower, making Kenya’s labour more expensive and unsustainable in the long term.

Second, even though nominal GDP has been averaging impressive growth rates for the last eight years, average income has not adjusted because real economy has not been growing at the same pace. But employees in the formal market have been enjoying regular wage increases, pushing the wage adjustments to an unsustainable path.

Third, this unsustainable path can also be evidenced by the economic trend where employees in the formal market are pushed out to the informal market because wage adjustments has shrunk more available opportunities. For middle-income economy, the labour movement economic trend we should be seeing is the reverse where many exit informal sector for formal market. Because that will mean the real economy and average income are experiencing real growth.

So, with such an upended labour market, a disruptive correction was inevitable. And it has unexpectedly come in the name of Covid-19. This explains why the various stability-oriented macro-economic policies deployed by government to save jobs and companies have been ineffective.

What is happening ideally is the market self-correcting, we are seeing massive lay-offs in the […]

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