NEWS

What Minimum Wage Rise Means

May 11, 2022

Kenya's new 12% minimum wage increase comes amid soaring prices. But only a few of the country's poor will end up with more in their pockets at the end of the month.

Kenya's largest trade union federation is delighted with the 12% minimum pay increase. President Uhuru Kenyatta announced the immediate increase at the country's Labor Day celebrations on May 1.

"It is a great win for the Kenyan workers," said Barasa Adams, International Advisor to the Secretary General at the Central Organization of Trade Unions (COTU) "particularly coming at a time when we've had a freeze in terms of employment wages as a result of COVID-19."

The union organization had originally lobbied for an even bigger raise to the minimum wage, which was last increased three years ago by 5%.

But given the strong pushback by the Federation of Kenya Employers (FKE), who were also at the negotiating table, COTU didn't expect such a large increase.

"When the president gave us 12%, we even became happier because we didn't expect that much," Adams told DW.

The FKE, which represents private and public sector employers, says Kenya's current economic situation doesn't support a pay rise.

"We are very unhappy about the increase as employers and as business people because it comes on the heels of a very, very difficult time for the business community ... and indeed for the workers," FKE executive director Jacqueline Mugo told DW.

"if you look at how the Kenyan economy has performed since COVID-19, really we saw a very drastic negative growth in the year 2020 and a slight improvement in 2021," she said.

How much is the new minimum wage?

Kenya doesn't have one minimum wage but rather several scales depending on what people do, their skill level and where they work.

The agricultural wage order applies to the agricultural sector where workers are paid according to their occupation and their skill level.

The general wage regulations covers other workers. This includes domestic workers, cashiers, drivers and storekeepers, who are paid according to their occupation and the region they live in.

For example, under the new wage hike, domestic workers living in one of Kenya's three biggest cities of Nairobi, Mombasa or Kisumu should now be paid a minimum of 15,201 Kenyan shillings ($131 or €124). That's an increase of some $14 a month.

Domestic workers living in rural areas are only paid roughly half of this amount, and so the new wage rise is also half, or about $7 a month.

Who benefits from the new minimum wage?

Kenya has some of the highest minimum wages in the East African region. But the vast majority of Kenya's 17 million employed won't benefit directly from the latest pay hike.

That's because minimum wage laws only cover employees who work in the formal sector, or 17% of workers.

"With well over 80% of the population in the informal sector, the impact of the wage rise is limited because the informal sector is large and doesn't necessarily always follow these guidelines," said Ken Gichinga, the Chief Economist at Mentoria Economics, a Nairobi-based consultancy.

More than two out of five laborers were paid below their respective minimum wages, according to the 2020 Kenya Labor Profile by the Danish Trade Union Council Development Agency.

The situation is often even worse for more vulnerable workers, such as women. More than four out of five domestic workers were paid below the minimum wage, a 2017 survey by COTU found.

Is the wage rise effective?

The cost of basic necessities, such as cooking oil, maize, bread and milk, as well as transport, has risen sharply in the past few years in Kenya, in part because of the COVID pandemic and most recently due to the Russia-Ukraine crisis.

This is causing significant hardship for many Kenyans.

"There is a compelling case to review the minimum wages so as to cushion our workers against further erosion of their purchasing power, while also guaranteeing the competitiveness of our economy," President Kenyatta said, explaining his wage rise decision.

But economist Ken Gichinga thinks the wage rise may be counterproductive, because businesses, which are "struggling" because of pandemic disruptions and higher production costs, may end up hiring fewer people.

"If you are a restaurant and you had five waiters, you might say: 'Okay, I only need three waiters now that the minimum wage has gone up' so [the wage rise] can contribute to even further unemployment in that sense," he said.

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This is backed up by a Partners for Economic Policy 2017 study on Kenya's minimum wage, which found that rural workers, who are among Kenya's poorest, were disadvantaged by minimum wage increases because it led to less employment.

Rather than raising wages, Gichinga believes it would be more effective in the short term for the Central Bank of Kenya to lower interest rates.

This would make it cheaper for businesses to get loans, stimulating industry to potentially hire more workers, which would help those employed in both the formal and informal sectors.

But given that Kenya is heading into a general election in August, he said, with its minimum wage increase, the government is obviously trying to manage both the "the politics of the day and also the economics."

Edited by: Benita van Eyssen

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