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Pain for workers as salaries stall

High inflation made worse by the adverse effects of Covid-19 has seen the quality of life of many employees worsen. [Courtesy]

From buying foodstuffs to lighting up homes, the cost of living is rising sharply.

But workers’ salaries and wages have not; and employers - who are supposed to ensure their earnings keep up with the cost of living - have their fair share of challenges.

The few employers who have the financial muscle to increase salaries are instead riding on high unemployment levels and weakened bargaining power in the labour market to hire talent for a song, according to Ken Gichinga, the chief economist at Mentoria Economics.

“Many employers feel there is readily available cheaper talent out there, and there isn’t much pressure to try and keep up with inflation to retain workers,” said Gichinga. “The problem is that purchasing power starts to weaken since you find that many people have never had a salary review, say for the last five years, but the cost of basic commodities has gone up.”

The onset of Covid-19 disruptions in March 2020 made an already battered corporate Kenya worse. Firms have had to resort to layoffs and salary cuts as they battle losses and declines in profits.

Those that have managed to keep all their workers and maintain salary levels or at least give pay raises are fast becoming outliers. Now the story of Kenyan workers is beginning to sound like the verses in “One From One Leaves Two”, the poem by Ogden Nash, the late American poet.

“The more you pay, the more they need. The more you earn, the less you keep. And now I lay me down to sleep,” he wrote.

Official data shows that workers’ real wage earnings - a measure of income after accounting for the cost of goods and services that people buy — has never posted annual growth of more than 3.2 per cent in the seven years to 2020.

In fact, in 2020, workers’ real earnings shrank by 1.5 per cent, meaning that their ability to buy goods and services that they had afforded in the previous year was weakened.

Wages have been rising, but a corresponding rise in the prices of goods and services like electricity, rent, water, charcoal, flour, rice, beef, cabbage, sukuma wiki and sugar has seen workers take a 1.5 per cent hit on their earnings.

And companies are not in a hurry to adjust this. Just a few sectors tend to compete for talent to drive up earnings. But even this pressure is fast deflated by the many people leaving colleges and joining the job market.

So any paycheck increase turns into a decrease, thanks to inflation, a major setback for many workers still struggling to shake off the effects of the Covid-19 pandemic.

Workers in the accommodation and food service industry, such as hotels, took the heaviest hit in 2020, with their real wages dropping by 9.7 per cent despite all the State interventions, including temporarily lowering value-added tax and pay as you earn.  

A recent survey by the Central Bank of Kenya, Financial Sector Deepening Kenya and Kenya National Bureau of Statistics showed that the livelihoods of 73.6 per cent of Kenyan households worsened last year compared to 2019.

The economic situation saw more than half of the households skip meals, forgo medical care and accumulate school fees arrears.

Some 43.3 per cent of households said they tapped into their savings for survival, 40.6 per cent cut their non-food budget, 38.9 per cent cut food spending, 22.1 per cent sold assets, while 29.6 per cent turned to loans. Similarly, 54.2 per cent said they had had to forgo buying medicine or visiting a hospital compared to 35.7 per cent who were in this category two years ago.

The findings, coming in an environment where earnings are almost flat and the price of goods and services rising, are an indication that many Kenyans are struggling.

Between 2013 and 2020, workers have seen their real wages drop three times, the worst coming in 2017 when real earnings dropped by 2.89 per cent to deal them a gut punch.

If prices are growing faster than wages, then people are getting inflation-adjusted pay cuts, making their lives more difficult.

This scenario, Gichinga says, leads to weakened purchasing power and partly explains why many people are turning to 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.

Inflation mostly impacts lower earners, who spend more of their money on fuel, food and other items that have in the recent past seen a faster rise in price, partly on new taxation. Only a few wealthier individuals, many of whom tend to hold more financial assets like stocks or homes, are sometimes well placed to beat inflation.

While the State issues guidelines indicating the minimum wages, companies and individuals are not honouring this.

Fulfilling what economists call a just wage — payment that can accommodate ones’ modest expenses and leave something for a rainy day - is just but a dream. The government has, for instance, not reviewed the average monthly basic minimum wages in urban areas since 2018. And even if it did, the directive is hardly ever implemented.

General labourers, including sweepers, gardeners, house servants, day watchmen and messengers working in Nairobi, Mombasa and Kisumu, are supposed to be earning a minimum of Sh13,573 monthly, while caretakers of buildings are supposed to earn at least Sh28,148.

But the reality has always been different, with many workers in such jobs being paid as low as Sh5,000.

For many firms and individuals, it is about controlling expenditure to keep their heads above water and many can hardly afford to honour minimum wage bills like for domestic workers.