Inflation hands workers worst pay-cut in 10 years

The sustained rise in the prices of goods and services has handed workers the second straight cut in the purchasing power, with last year being the worst in a decade.

Government data released yesterday showed real wages— a measure of income after accounting for the cost of goods and services people buy—shrank by 3.83 per cent to add to the 1.4 per cent decline the previous year to hand pay cuts to workers.

This means since 2013, Kenyan workers have now seen a drop in real wages four times, with that of last year beating the 2.89 per cent that was seen in 2017.

If prices are growing faster than wages, then workers are said to be getting inflation-adjusted pay cuts since their earnings are now affording less goods and services than they used to do before.

The 3.8 per cent decline in real wages, coming in the year inflation averaged 6.3 per cent, is the worst in a single year since 2011 when real wages dropped by 8.6 per cent at a time inflation was 8.6 per cent.

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Many firms, hit by Covid-19 disruptions, handed pay cuts to workers in 2020 and have struggled to reinstate full pay and rise wages above pre-pandemic levels.

The impact is that inflation has raced above the pace of pay rises, worsening the well-being of workers across different sectors- both in public and private sector.

The data shows workers in the private sector on average suffered Sh2,394.03 cut in their real wages every month while those in the public sector have seen Sh2,298.94 drop.

Ken Gichinga, the chief economist at Mentoria Economics, recently said the inflation pressure, which has weakened the purchasing power, partly explains why many people are turning into side gigs to supplement employment income.  “Many people are developing the side hustle culture because they feel they need a secondary revenue stream. Salaries alone are failing to meet workers’ needs,” said Gichinga.

Workers in the electricity, gas, steam and air conditioning supply sector in the private sector have lost Sh7,602.75 monthly income to inflation while those in financial and insurance activities have had to do without Sh7,286.

Inflation-adjusted earnings in private sector’s professional, scientific and technical activities as well as administrative and support service activities have averaged Sh4,426 and Sh4,385 per month.

But workers in activities of extra-territorial organisations and bodies, which includes non-governmental organisations, have seen the heaviest hit with their monthly real wages dropping by 4.5 per cent or Sh12,804.

Other top losers to inflation in the public sector were workers in the financial and insurance activities with their monthly real wages dropping by 17.2 per cent or Sh29,549.

Public sector workers in accommodation and food service activities saw a 4.72 per cent dip or Sh8,889 monthly dip in real wages while that of workers in manufacturing and electricity, gas, steam and air conditioning supply dropped by Sh5,308 and Sh6,154 respectively.

Official data shows workers’ real wage earnings has never posted an annual growth of more than 3.2 per cent in the eight years to 2021.