Economy
80pc of employed Kenyans poor as wages fail to cover basics
Friday December 29 2023
Executive Director and CEO Federation of Kenya Employers Jacqueline Mugo (right) addresses journalists on issues affecting employers during a press briefing at Waajiri House in Nairobi on November 24, 2023. PHOTO | NMG
About 15.3 million or 80 percent of employed Kenyans are living in poverty, implying that their incomes aren’t sufficient to afford them and their families a decent living.
The latest statistics on working poverty from the International Labour Organisation (ILO) show 26 percent of working Kenyans are ranked as extremely poor, while 29 percent and 25 percent are classified as moderately poor and near poor respectively.
The data ranks Kenya at number 30 out of the 120 in terms of economies in the world with the highest proportion of employed people whose jobs have failed to lift them out of poverty.
Kenya is tied with Zimbabwe and trails countries such as Mali, Burkina Faso, Haiti, Cambodia, and Ghana whose workers are better off despite their gross domestic product being smaller.
Read: Kenya’s wage bill to rise above Sh1.1 trillion on salaries review
This means that having a job in Kenya has not been enough to keep the majority of people and their families out of poverty, pointing to issues of job quality and the inadequacy of earnings in an economy where pay rises have been below inflation for three straight years.
“The statistics point to a labour market that is almost broken and does not create enough high-quality jobs. It also points to an economic model that is not generating prosperity,” said Ken Gichinga, the chief economist at Mentoria Economics.
“Unless we get our national tax policy right, it is going to be very difficult to create an environment that allows businesses to thrive and create high-quality jobs. A burdensome taxation system cannot generate prosperity.”
The ILO data, which shows only 20 percent of the working are out of poverty, also shines a spotlight on the quality of earnings for working Kenyans.
The economy employed 19.15 million people by the end of last year, with 15.96 million or 83.3 percent working in the informal sector where wages and working conditions are often not regulated by the government.
The ILO ranking uses the absolute international poverty line of $1.90 (Sh297.35) per person per day at purchasing power parity.
The cost of living in Kenya has risen, but the minimum wage has not increased at the same pace, reducing the real minimum wage. In 2022, the minimum wage increased by 12 percent— the first review since 2018— but the cost of the minimum wage basket increased by an average of 22 per cent, with food expenses being the key driver.
Read: Tough times for workers as payroll taxes rise slowest in seven years
Kenya National Bureau of Statistics data shows real wages— a measure of income after accounting for the cost of goods and services people buy—shrank by three percent in 2022, marking the third straight year of inflation-adjusted pay cuts.
The ILO data on working poverty corroborates findings by the Kenya Institute of Public Policy Research and Analysis (Kippra) in its Kenya Economic Report 2023, which showed the country is grappling with a rise in the number of people whose wages and salaries are far below the minimum required to meet the basic needs of food, shelter and clothing.
Kippra said the majority of workers in Kenya are paid below the minimum wage which varies by sector and location —covering about 45 separate categories— but has not benefited many people due to limited coverage and enforcement.
“Most workers still earn below minimum wage, accounting for 77 percent of total workers, out of which 29 and 71 percent are in the formal and informal sectors, respectively,” said Kippra.
“Enforcement of the minimum wage is limited by an inadequate number of enforcement officers and the complex system of minimum wage setting that varies based on occupation, skills level, and location.”
Additionally, Kippra noted, that the minimum wage allocated to workers was still lower than the amount required to achieve a decent living and was covering only about half of the total necessary expenses.
Compulsory monthly deductions such as Pay as You Earn, National Social Security Fund, National Health Insurance Fund and housing levy, added to personal deductions such as those towards servicing loans, have all eaten into workers’ take-home pay.
Eight Kenyans recently sued President William Ruto’s government for “wage slavery”, which they say has been orchestrated by too many taxes and levies introduced “with reckless abandon”.
Read: Why petitioners want Ruto taxes capped at 20pc of workers’ salaries
The petitioners, who approached the High Court under a certificate of urgency, want the court to cap the taxes and levies that can be imposed on an individual at 20 percent and 30 percent for corporate bodies.
“In its classical meaning, any person whose labour can only afford them the basic necessities of food, clothing and shelter is considered a slave or a wage slave. Over the last one year, many Kenyans have fallen into the wage slave bracket despite the fact that Article 30 of the Constitution absolutely prohibits slavery in Kenya,” they said in the petition.
Monthly deductions, including those towards loan repayment, healthcare and housing, have breached two thirds of the salary for thousands of workers, presenting a compliance headache for employers and financial institutions.
Jacqueline Mugo, the executive director and CEO of Federation of Kenya Employers (FKE), told the Business Daily there has been “quite an increase” in the level of breach with the Employment Act’s requirement.
“There is a need for the government to harmonise these deduction laws. What do we obey? Do we obey the Employment Act or others like for housing levy and pension? At the end of the day, all these are laws and none supersedes the other except the Constitution,” she said.
Compulsory monthly State deductions will start taking at least 20.5 percent from Kenyans earning Sh50,000 and above come next year if the government implements the proposal to increase deductions towards healthcare from the current range of Sh150 to Sh1,700 to a flat rate calculated at 2.75 percent of gross monthly earnings.
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