Kenya labor market at a crossroads as State milks workers dry

Consider this. A teacher who earned a monthly salary of Sh56,092 in 2020 was earning Sh51,475 by 2022, while a county worker who earned Sh72,044 in 2018 took home a monthly salary of Sh58,399 in 2022.

The teachers lost Sh4,617 in monthly spending power during the two years, and the county worker lost a fifth (Sh13,645) of pay during the four years. And the situation has become even worse, with new taxes and levies introduced last year.

These are not just abstract figures but what has been the reality of the two categories of workers and a representation of the general state Kenyan workers, whose lives continue to get unbearable with increasing taxes and levies amid a rising cost of living, as the world marked Labor Day Wednesday.

On average, while salaries for the more than three million formally employed Kenyans have increased by Sh11,369 monthly between 2018 and 2022, new burdens on the payslip and the rising cost of living have been seen which employees take home for spending reduce by Sh3,467 , from an average monthly salary of Sh61,535 to Sh58,068, data by the Kenya National Bureau of Statistics (KNBS) show.

“The Sh50,000 of today is not necessarily the Sh50,000 of 2021. All these are the pressures that the employees of today are facing. The salary is stuck on the same line, taxes, the housing burden, rent, electricity bill, fuel, health, and education keep increasing,” says James Shikwati, founding director at Inter-Region Economic Network, a research firm.

The KNBS data show that within the public service, workers paid under the Teachers Service Commission—mostly teachers—had their real salaries reduced by 8.2 percent between 2020 and 2022, county government workers dropped by 20 percent between 2018 and 2022, and pay for workers in parastatals dropped by 16.7 percent in the four years.

It’s a reality that not only employed Kenyans are living, but also more than 15 million in informal employment, as the going gets tough.

But the bigger problem is that in this context, the employer and the worker are crying, and the government—pressured to service debt and unwilling to explore alternative revenue-raising measures—continues to hammer the payroll for additional monies to pay huge public debts and bloated public service wage bill, hitting businesses and workers.

“From the perspective of employees, we’ve seen disposable reduced incomes because people don’t have money to purchase basic commodities, leading to low morale and productivity. There have been a lot of stress and strains not just at the workplace but also where employees live, and this is finding its way into the workplace,” observes Federation of Kenya Employers (FKE) executive director Jacqueline Mugo.

Ms Mugo says new taxes and levies have not only affected workers’ take-home pay but also businesses’ payroll and overall operating costs.

This, she says, is affecting employment, causing massive layoffs in different sectors, and preventing investors from putting their money into the economy. This is despite many of the businesses having not restored workers’ full salaries after slashing them during the Covid-19 pandemic in 2020.

The FKE at the start of last November indicated that more than 70,000 formal jobs were lost between November 2022 and October 2023.

“The situation must be worse than it was at that time. That 70,000 was an indicative figure, we hadn’t completed the survey, and the ones who hadn’t laid out people were thinking of it. “We are in the process of another survey that will show higher numbers.”

“The cost-cutting measures that businesses have had to put in place are aimed at keeping enterprises alive and functional, keeping people in employment, and the cautious attitude that businesses are employing is not aimed at punishing employees but finding a way for enterprises to cope in this difficult time,” says Ms Mugo.

From the workers’ side, as Central Organization of Trade Unions (Cotu) secretary-general Francis Atwoli made final touches for the Labor Day national celebrations at Uhuru Gardens in Nairobi on Monday, he was also cognizant of the state of life of the Kenyan worker . “We are holding Labor Day celebrations when we have had very difficult times in our country, particularly issues related to spurring our economic growth and issues related to the skyrocketing cost of living,” he said.

Mr Atwoli said employers are increasingly becoming unable to implement signed collective bargaining agreements, and trade unions are having to engage them to understand prevailing issues and how agreed changes can be implemented, even as he has challenged the government to crack down on big enterprises that are avoiding paying taxes and causing more burden on the taxpayers.

“Most entrepreneurs in this country don’t pay taxes. Until people pay taxes, the government will have money, development going on, and people getting salaries and employment,” he said.

With employees and employers struggling, tensions are rising. The future of Kenya’s labor market is uncertain — with an ongoing strike in the health sector persisting for the second month, a plan by the government to transition all public servants from permanent to contract employment terms to save costs, and a burdened worker hit from all corners.

Skipping meals

Recent studies have shown that Kenyan workers have had to normalize skipping meals, walking to work, and moving to cheaper houses to cope with the rising cost of living amid stagnating salaries.

And even as workers oppose plans by employers in the public and private sectors to eliminate permanent employment in favor of short-term contracts, employers are increasingly appearing determined for the change.

“Businesses are looking at flexibility, the ability to determine how many staff you need based on the demand from consumers and fluctuations. It’s a reflection of shifting labor market dynamics and an effort by enterprises to optimize. It’s a difficult decision, it’s going to change our concept of working until retirement,” says Ms Mugo, the employers’ representative.

Following the Public Service ministry proposal to have all public service employees on permanent and pensionable terms turned to contracts, county governments have also joined the fray. Indications are that the whole government could take the direction, not withstanding the legal and related costs.

“This is a matter we discussed under former President Uhuru Kenyatta about three years ago during the nurses’ strike. The summit resolved that all employees would be put on contract. There is nothing wrong with a contract as long as it is well stipulated and takes care of the employees’ interests, and pension,” says Council of Governors chairperson for the Human Resource Committee, Nyeri governor Mutahi Kahiga.

However, Mr Kahiga also notes that the strategy could ultimately be aimed at providing the government with more control over workers, particularly in agitating for their welfare, stating that “right now we have a challenge with those calling themselves permanent employees.

“In Kirinyaga, nobody is on strike because doctors are on contract. And it is them that are forcing us to go in that direction.”

It is still not clear what the impact of transitioning to short-term contracts would be for the public and private sectors, but the reality is that more than 80 percent of Kenya’s labor force is in the informal sector, at least by the latest KNBS data —2022.

Mr Shikwati, the economist, summarizes this mix of the labor force as a combination of first-world and Stone Age, with the Stone Age (the informal sector) overpowering the modern sector by far.

“Kenya finds itself in a very special space in the sense that there is the Kenya that is already highly developed with companies having state-of-the-art technology, and there is the Kenya that is still in stone-age, still in the backwards—roads are not there, the internet is not there, there is no electricity. And all these are Kenyans,” he says.

Incentivising investments

What all the players in Kenya’s labor market agree upon is that it is not sustainable for the government to continue targeting the formally employed person for each of its growing spending needs. The government must encourage private sector productivity through incentivizing investments, which will in turn increase jobs and salaries for workers, as more industries can export.

“Things would be easier if the government motivated everyone to be productive and then ask itself what it has been doing to make people not productive. Part of the reason the 15 million workers are in the informal sector is because they feel that the government wants to tax them, but they can’t see the service. They tax you, but the only thing you can see is government administrators bullying you with modern machines, but they are not ready to bully you with service,” the economist argues.