Thursday, 2 May 2013

The 14% minimum wage announcement on Labour Day just reveals the folly of the man in charge 

No country with unemployment rates higher than 25% can afford the luxuries of 'minimum wage'. Increasing the minimum wage does not make economic sense for a third world economy with over 45% poverty, 40% unemployment, and without substantive government revenues.

Frankly, the government of Kenya does not have the economic muscle to invest in public works projects that can then allow them to dictate wages. They must negotiate effectively with the private sector and trade unions in order to have a workable formula. In principle the 14%, thrashed down the throats of the private sector will in the long run crowd out investment and exacerbate unemployment.

The typical urban poor should not rejoice in the 14% announcement. Why? This is nothing more than populist PR stunts that will neither increase employment nor improve the conditions of existing ones. See, the Kenya Association of Manufacturers already expressed their dissatisfaction and  I won’t be surprised if KEPSA follow suit.

What you need to address unemployment especially for the young, average skilled or semi-skilled is labour intensive manufacturing like in apparel making (shoes, clothing etc) or electrical and electronics. These require little skill. Employers can thus afford to absorb a lot of labour (at a cheaper cost) while still managing to maintain sufficient turnovers. When you dictate the minimum wage – you simply telling these folks and the many others looking to come invest in Kenya to move elsewhere. The options are many. What such investors need is a cheap labour and a conducive business environment  - that is precisely what those in government should busy themselves with; not unilateral populist announcements.

Mr. President Sir, that decision is bad for business, bad for investment, bad for national income, bad for unemployment and bad for poverty reduction. What you need is an effective tri-partite mutual agreement between government, private sector and trade unions to meaningfully improve wages while still maintaining an attractive, competitive business/investment environment in Kenya.

Okwarohztake:  That 14% announcement just reveals the folly of the man in charge

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