Salaries plunge in real terms for three consecutive years

Inflation wiped out private sector pay increases of 5.6 percent last year, making it the third year in a row that wage increases lagged behind the rising cost of living.

Results of the annual economic survey conducted by the Kenya National Bureau of Statistics (KNBS) show that average earnings of private sector workers have recovered from 2021 when it grew by 2.6 per cent and 3.6 per cent in 2020.

However, when adjusted for rising prices or inflation, wages fell 2.7 percent in a year when the cost-of-living measure rose to levels seen more than five years ago, largely due to the war in Ukraine and drought.

Energy and food prices have jumped upwards, leaving many people struggling to pay their bills in an economy whose growth has slowed in the past year.

Kenya’s economy grew by 4.8 percent last year, down from 7.6 percent a year earlier, as a severe drought hit agricultural production.

The economy has also felt the effects of a weaker local currency and an increased burden of public debt.

The increase of 5.6 per cent saw the average salary of formal workers increase to Kshs 72,983 from Kshs 69,090 last year.

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Public sector workers saw their wages increase by less than 2.3 per cent last year to an average of Ksh70,239 on the back of larger salaries in parastatals.

The economic slowdown has led to a decline in the number of new jobs, in both the formal and informal sectors, to 816,600 last year from 924,900 in 2021.

The number of new jobs in the formal sector reached 109,300, down from 163,500 registered in 2021, which is a blow to more than a million young people who graduated from colleges and secondary schools.

Last year marked the first time in a decade that real wages, adjusted for inflation, have contracted for three consecutive years, suggesting a difficult environment in which workers’ pay has not kept pace with the rise in commodity prices.

Families are feeling the malaise across Kenya as skyrocketing food and fuel prices have pushed the inflation rate above the government’s preferred ceiling of 7.5 percent since June last year.

Inflation eased to 7.9 percent last month from 9.2 percent in March, due to moderating growth in food prices.

Employers warn that it will take years for wage increases to return to pre-pandemic levels, with companies worried about business uncertainty despite an economic recovery after easing measures aimed at curbing the spread of Covid-19.

The private sector increased wages by an average of 8.1 percent in 2019, months before COVID-19 hit Kenya, prompting layoffs, salary cuts and business closures.

The Federation of Kenya Employers (FKE) has said workers compensation to cover inflation will resume when productivity starts to grow faster than a cost-of-living measure.

The employers’ lobby said that productivity in Kenya is “not only low, it’s already declining”, citing the findings of the 2022 economic position paper on wages released by the Ministry of Labour.

Extremely high inflation has forced many families, especially in the lower income bracket, to reduce their shopping basket in an environment where companies have frozen salaries as they recover from the economic hardships of Covid-19.

The rise in the cost of basic commodities could force workers to cut back on non-essential items such as beer and airtime, ultimately hurting companies such as East Africa Breweries Limited (EABL) and Safaricom.

The average real income for all workers was negative 3.0 percent last year compared to negative 3.8 percent (2021), negative 1.4 percent (2020) and 2.7 percent in both 2019 and 2018.

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KNBS said in its 2023 economic survey that the agriculture, forestry and fishing sectors contracted 1.6% in 2022 from a 0.4% contraction a year earlier.

“This is due to the dry conditions that characterized the period under review,” she said of the sector, which accounted for 21 percent of GDP.

In September last year, the Treasury Department predicted 2022 growth of 5.5 percent.

The National Bureau of Statistics said some of the major sectors that contributed to last year’s growth were finance, insurance, information and communications, transportation and warehousing.

“2022 has been overshadowed by many ongoing negative shocks,” said Nguguna Ndongo, Cabinet Secretary to the Exchequer.

Professor Nguguna noted that most of the growth last year was evident in service sectors such as hospitality.

Last year, for example, formal jobs in the hospitality sector, which includes accommodation and food services, rose 23 per cent faster from 61,700 to 75,900 – highlighting the ongoing recovery from Covid-19 disruptions that led to hotel closures as operations continued. Closure. visitors away.

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