Economy

Private sector salaries’ growth at 10-year low

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Federation of Kenya Employers (FKE) executive director Jacqueline Mugo. FILE PHOTO | NMG

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Summary

  • Civil servants last got a pay raise in 2017, but have used the fat allowances to enlarge their take-home.
  • The SCR has moved to curb the perks in a bid to contain the ballooning public wage bill, which hit Sh694.05 billion from Sh669.55 billion in 2019.
  • With inflation averaging 5.4 percent last year, the workers’ purchasing power was eroded by the rise in the cost of living.

The average earnings for workers in the private sector grew at the slowest pace in a decade last year as pandemic-hit firms moved to slash salaries and adopt unpaid leave policies to contain costs.

Findings of the latest Economic Survey by the Kenya National Bureau of Statistics (KNBS) show companies raised average monthly pay by 3.82 percent to Sh67,490 in the year ended June 2020, a steep drop from the 8.16 percent raise to Sh65,006 the year before.

That was the slowest rise in earnings since 2011 when firms raised average pay by 3.48 percent, and nearly half the average 7.41 percent in a decade before last year.

Employers are warning it will take years for pay raises to return to pre-pandemic levels, with firms struggling with elevated costs largely due to uncertainties brought about by Covid-19.

The Federation of Kenya Employers (FKE) said persisting instability in global supply chains and increasing global oil prices had saddled firms with a high cost of materials and further raised the cost of operation.

"As early as 2015 the federation warned that the fundamentals in the labour market especially those touching on what should determine wage increments were weak," FKE executive director Jacqueline Mugo told the Business Daily.

"The pandemic did not only accelerate an already worsening situation in the business operating environment, it also destabilised the equilibrium."

Firms resorted to laying off workers, slashing salaries, and adopting unpaid leave policies to cut operating costs in April 2020 after public health authorities enforced business shutdowns and travel restrictions to contain the spread of the coronavirus.

The pay raise was even slower in the public sector where average monthly earnings were flat, edging up 1.38 percent to Sh65,378 compared with 7.94 percent to Sh64,486 in the year ended June 2019.

Overall, average monthly earnings rose 3.02 percent in the review period to Sh66,809 at a time the country’s economic output — technically known as gross domestic product (GDP) — shrank 0.31 percent, the first annual contraction since 1992 when it slid 0.8 percent.

Some 737,500 jobs were also lost in the year through June 2020 compared with the 847,100 created a year earlier.

"The slower growth in average earnings could be due to implementation of pay cuts by employers in response to the negative impact of the Covid-19 pandemic," the KNBS wrote in the Economic Survey 2021.

While public sector workers— including civil servants, teachers, security officers, and county workers — were spared basic salary cuts, the Salaries and Remuneration Commission (SRC) intensified its clampdown on hefty allowances, whose number has shot up to 247 from 11 in 1999.

Civil servants last got a pay raise in 2017, but have used the fat allowances to enlarge their take-home.

The SRC has moved to curb the perks in a bid to contain the ballooning public wage bill, which hit Sh694.05 billion from Sh669.55 billion in 2019.

With inflation averaging 5.4 percent last year, the workers’ purchasing power was eroded by the rise in the cost of living.

KNBS analysis shows real monthly average earnings — which have factored in inflation — for public sector workers decreased 3.06 percent to Sh60,387, while private sector’s dropped 0.73 percent to Sh62,337.

"Pay raise in real terms will occur when the productivity of enterprises improves beyond the inflation," Ms Mugo said. "The average labour productivity in Kenya remains low. This needs to change for the country to experience impactful pay rise."

Earnings by employees in the hospitality and education sectors, which are yet to resume full operations, were the hardest hit by pay cuts as a result of Covid knocks.

Workers in accommodation and food service activities were the most affected by the Covid containment measures such as closure of bars and restricted operation of restaurants and hotels as well as a fall in tourists due to restricted domestic and international travels.

The report by the statistics office shows workers in hospitality suffered a 5.56 percent drop in average monthly earnings to Sh35,736 last year compared with a 4.45 percent rise to Sh37,839 a year earlier.

Teachers and other workers in private education facilities, including universities, also experienced a drop in average monthly pay, which was slashed 1.6 percent to Sh81,726., while the monthly payment for their counterparts in public institutions went up 2.46 percent to Sh60,792.84.

The learning institutions were shut from mid-March until October 2020 when phased reopening was allowed, but some higher education facilities are yet to resume in-person to date.

The findings of the Economic Survey 2021 show that workers hired to undertake professional, scientific, and technical activities in the public sector had the highest growth in earnings of 13.77 percent to Sh93,193 a month, while those offering the same services in private practice had a pay raise of 7.33 percent to Sh120,687.

Average monthly earnings for employees in the healthcare sector, the frontline warriors in the battle against the pandemic, went up 10.86 percent to Sh137,465 for those in public facilities and 8.48 percent to Sh87,737 for the private sector.

The Treasury has pledged to maintain a moratorium first issued in 2013 that froze new employment in government except for essential sectors such as security, education, and healthcare, in addition to stopping pay raises.

"The National Treasury advised the commission that due to the effects of Covid-19 on the performance of revenue and the expected slow economic recovery, it should consider postponing the review for the next two fiscal years (ending June 2023) until the economy improves," SRC chairperson Lyn Mengich said in June.