World Bank says low-wage jobs derailing poverty fight
Hawkers sell their wares near the Kenya National Archives along Tom Mboya Street.
The proliferation of low-wage informal sector jobs has derailed Kenya’s progress on poverty eradication.
According to a new report by the World Bank, the rate of poverty reduction has slowed down since 2019 despite the transformation of the economy away from the traditional and mainstay agriculture sector.
The report—The Kenya Poverty and Equity Assessment 2023: From Poverty to Prosperity: Making Growth More Inclusive—shows that the country made the most progress in reducing poverty levels between 2005 and 2015 when the absolute poverty rate fell to 36.1 per cent from 46.7 per cent, with the number of poor individuals declining from 16.5 million to 15.8 million even as the population grew.
The number of poor Kenyans increased to 20.9 million following the outbreak of the Covid-19 pandemic in 2020 and stuck above pre-pandemic levels at 19.1 million persons in 2021.
Despite the correlation between economic growth and poverty reduction, the World Bank notes that the relationship has weakened due to the creation of low-quality jobs in the informal sector.
“Economic transformation has resulted in the services sector increasingly becoming the engine of growth, but the poor have not reaped the benefits because they tend to be in low-productivity informal work in the services sector, largely in self-employment or informal wage employment,” the report notes.
Economic benefits including wages for skilled workers in the services sector have been relatively higher in contrast to low-skilled workers, resulting in the weakening relationship with poverty reduction.
The share of Gross Domestic Product (GDP) of traditional sectors such as agriculture and manufacturing has been declining, while sectors such as transport and storage, accommodation and food service have been on the rise in recent years.
Informal sector
Data from the Kenya National Bureau of Statistics (KNBS), for example, shows the contribution of agriculture to the GDP has dropped from 22.7 per cent in 2020 to 21.2 per cent last year, while the contribution of transportation and storage grew to 12.4 per cent in 2022 from 11.6 per cent in 2021.
Jobs creation in the period has nevertheless remained concentrated within the informal sector, revealing difficulties of creating formal/modern jobs in the economy. The 2023 Economic Survey shows that wage employment in the formal sector increased by a mere 109,000 last year against a jump of 703,000 jobs in the informal sector in the same period. Total employment in the formal sector, at 3.18 million, is dwarfed by informal sector employment at 15.964 million.
Low levels of labour force participation by the poor has also been linked to the slowing reduction in the poverty rate where the poor in rural areas tend to have the lowest share of working-age members, resulting in high dependency ratios.
“The youth and women, particularly in arid areas, participate less in the labour market than other groups, driven by a lack of suitable jobs in the area linked to low non-farm diversification, while for women, family responsibilities are associated with low labour force participation,” the report adds.
Poverty reduction
The World Bank has called for the transformation of the agriculture and services sector to cure the slack in poverty reduction, noting that the poor’s productive capacity is mainly deployed in agriculture and services sectors.
“The working poor are engaged in these two sectors (agriculture and services) in small-scale, low-productivity, and low-earning activities. In rural areas, the poor have a less diversified sectoral portfolio of employment activities, with most concentrating their labour in agriculture. This indicates some barriers to entry into more productive rural nonfarm sectors of the economy.
“In urban areas, the poor are concentrated in the low-productivity services sector, as the self-employed, those engaged in household enterprises, or those working for pay in microenterprises,” the report notes.
Statistics from KNBS covering the quarter to December 2022 placed the labour force number at 19.39 million, 18.43 million of which were employed while 960,001 were unemployed translating to an unemployment rate of 4.9 per cent.
The labour force participation rate was at 66.7 per cent, and was highest among persons aged between 50 and 54 years at 92.4 per cent and lowest for those between 15 and 19 years and 20 and 24 years at 16.5 and 57.2 per cent, respectively.
