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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.
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.

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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 formal sector which will later be replaced with less expensive labour, where many may come back through temporary contracts as the market adjusts to a new wage rate equilibrium.

This can be compared with the eagle mooting analogy– an old eagle always finds it difficult to fly because the wings become too heavy and plucks them to renew feathers and soar again.

This is one of the decisions Kenya Airways (KQ) should decisively take right now as we are looking at its re-nationalisation plan, just as other global airlines have been restructuring.

COMPANY TRAINING

Despite pilots representing a small fraction of the total workforce, they take up a large share of the wage bill and when compared to counterparts, KQ pilots earn twice as much as their Ethiopian Airlines counterparts who fly 35 percent hours more than them.

Making it worse, many of the pilots have been trained at the company’s expense, through their pilot-cadet scholarship, making the cost of hiring their services more expensive.

Why should human capital that the company has paid for training be more expensive than the average market rates?

This is the time for KQ to put its foot down and correct this inefficiency or choose the highway like British Airways, which has sacked 350 pilots and Emirates 600. KQ management is well aware that the other option is taking more debts and bailouts to keep it afloat while the wage bills remain unsustainable.

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