Economy

Inflation, stagnant wages left workers poorer in 2017

econ

From left: Planning Principal Secretary Julius Muia, Treasury CS Henry Rotich, Nelson Gaichuhie, chief administrative secretary at Treasury and Kenya National Bureau of Statistics director general Zachary Mwangi on April 25, 2018. PHOTO | DIANA NGILA | NMG

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Summary

  • Formal sector employees took a pay cut of 2.9 per cent last year when their wages are adjusted for inflation, leaving them in a worse financial position compared to previous years.
  • This was the first time in five years that real wages dropped.
  • The purchasing power erosion came in the middle of an economic slowdown that saw growth decelerate to a five-year low rate of 4.9 per cent from 5.9 per cent in 2016.

Kenyan workers’ take-home pay fell below the cost of living in 2017, weakening consumer purchasing power in an economy that grew at the slowest pace since 2012, according to the 2018 Economic Survey report released yesterday.

Formal sector employees took a pay cut of 2.9 per cent last year when their wages are adjusted for inflation, leaving them in a worse financial position compared to previous years.

This was the first time in five years that real wages dropped.

“Real average earnings declined by 2.9 per cent compared to an increase of 0.1 per cent in 2016, mainly due to the increase in inflation,” says the Economic Survey 2018 report.

Inflation-adjusted pay is technically known as real wage and is ordinarily taken as the best indicator of the workers’ ability to purchase goods and services based on prevailing prices. The survey also found that the economy defied a tough political climate and environmental challenges to mint 110,000 new formal sector jobs in 2017.

The purchasing power erosion came in the middle of an economic slowdown that saw growth decelerate to a five-year low rate of 4.9 per cent from 5.9 per cent in 2016.

Kenya’s average real wage slipped to Sh30,750 per month, or Sh369,004 yearly, down from Sh31,664, according to the survey by the Kenya National Bureau of Statistics (KNBS).

Inflation surged to an average of eight per cent in 2017, compared to 6.3 per cent the previous year, driven by sustained increase in prices of food and cost of transport, along with high housing and healthcare costs.

The slowdown in workers’ real earnings also suggests that many employers did not award their workers a pay increase in a year that was roiled by a prolonged election cycle and drought.

It did not help that the banks tightened credit flow to small businesses and individual borrowers.

Minimum wage

Official data shows that wage increments were scarce and marginal despite President Uhuru Kenyatta’s decision to raise the minimum wage by 18 per cent in May last year ahead of the August elections.

That pushed the average minimum pay of the least paid workers in Kenyan cities to Sh19,831 from Sh17,200.

Economists have, however, warned that use of average wage as a yard stick in assessing the country’s earnings may not offer a true representation of the labour market.

This is because of the yawning pay gaps between a few highly paid managers and the majority of employees who earn less than the average pay. The survey shows that the economy shrugged off a hostile climate to generate 110,000 new formal jobs, nearly growing by a third from 2016’s 84,800.

The growth bucked a recent downward trend in formal jobs creation, though the picture of the job market is one of mixed fortunes as companies, led by banks, have recently cut staff numbers.

READ: Economy creates 897,800 jobs, best yet under Uhuru

Corporate Kenya

The survey also found that the public sector last year overtook the private sector as a creator of new formal jobs, offering a glimpse into the state of corporate Kenya.

The private sector churned out 49,200 new formal jobs in 2017, a decline from 57,600 the previous year compared to the national and county governments which added 60,800 formal jobs.

KNBS, however, warned that “the new jobs included the extra personnel that the IEBC hired to manage the elections and recruitment in essential services such as health, education and security.”  

Overall, the economy created a total of 897,800 new formal and informal jobs last year after recording an eight per cent jump. Up to 83 per cent or 787,800 were informal jobs.

Though formal sector workers took a pay cut when their pay is adjusted for inflation, nominal average annual earnings grew to Sh684,097 last year, or a monthly paycheque of Sh57,008, from Sh53,752 a month in 2016.

Govt pay higher

Public sector salaries remain higher than private sector pay, with government employees earning an average of Sh57,915 per month compared to the private sector’s Sh56,624.

Employees in the financial services and insurance sectors remain the best paid in the country, followed by those in energy, the survey showed.

State-employed workers offering financial and insurance services last year pocketed an average Sh141,988 per month, while their counterparts in the private sector received a monthly take-home pay of Sh146,630.

Overall, some 16.9 million people were in employment last year, out of which 14 million were in the informal sector and 2.7 million in formal employment.

Total wage bill hit Sh1.8 trillion from Sh1.6 trillion.

READ: Kenya's economy records slowest growth in five years