Stagnant wages and food loans make Labor Day bleak

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A Jua Kali artisan goes about his business at Kibuye market in Kisumu County. [Collins Oduor, Standard]

The rising cost of living introduces something on the pay slips of many workers: consumer loans.
Whether it’s buying food, lighting homes or educating children, the cost of living is rising sharply. But the wages and salaries of workers can only watch.

Taxes and inflation move at the speed of a sprinter in the race, without ever stopping. But wages run like a marathon runner; sometimes slowing down to sip water and sometimes giving up, never to finish the race.

The difference between these two speeds is a problem for workers. Yet employers, those who are supposed to ensure wages keep up with the cost of living, have their own share of challenges.

Then there is another group of people — the unemployed — who want to move into the employee category. For them, even a half-empty glass would do. Yet many businesses struggle with limited cash flow and accumulated losses.

And so, even though they would have liked to brighten the faces of their employees this Labor Day, their financial muscles tell them only one thing: to cut costs.

The few employers who can afford to raise wages are taking advantage of rising unemployment rates and weakening bargaining power in the labor market to hire talent for a song.

This is not a Covid-19 induced problem. Economic disruption due to the virus has only worsened a fragile situation. The Covid-19 disruptions in March 2020 took an already battered business in Kenya and made it worse with layoffs and pay cuts.

Companies that have managed to keep all workers and maintain wages or at least give some wage increase quickly become extreme cases.

Many businesses are yet to return to pre-Covid-19 levels. Others opted to cut contributions to workers’ pensions and withdrew benefits such as lunch to protect themselves from total collapse.

Official data shows that workers’ real wages – a measure of income after taking into account the cost of the goods and services people buy – have never grown more than 3.2% annually in the seven years preceding 2020.

In fact, in 2020 workers’ real incomes fell by 1.5%, meaning their ability to purchase goods and services they purchased the year before was weakened.

This means that rising prices for goods and services such as electricity, fuel, cooking oil, cooking gas, rent, water, charcoal, flour, rice, beef, cabbage, sukuma wiki and sugar resulted in lower wages for workers.

Workers in the accommodation and food service sector, such as hotels, were the most affected in 2020, with their real wages falling by 9.7% despite all the state interventions such as the reduction temporary value added tax (VAT) and pay as you go (PAYE) .

If prices rise faster than wages, people get inflation-adjusted wage cuts, making life difficult for them.

The latest data from the Kenya National Bureau of Statistics (KNBS) shows the cost of living hit a seven-month high of 6.74% in April, down from 5.6% in March, putting pressure on budgets Household.

This comes at a time when the Federation of Kenya Employers (FKE), an umbrella body for employers, has ruled out increases in the minimum wage, saying many businesses are not yet off the hook.

“It is a reality that businesses have not recovered from Covid-19 and we are still feeling the impact and most businesses have not returned to where they were before the pandemic,” said Jacqueline Mugo recently. CEO of FKE.

Inflation mainly affects low-income people, who spend more of their money on fuel, food and other items that have recently seen prices rise faster, in part due to new taxes.

Achieving what economists call a fair wage – a payment that can cover modest expenses and leave something for a rainy day – is just a dream.

The government has, for example, not reviewed average monthly basic minimum wages in urban areas since 2018. And even if it did, those wages are barely enforced.

General laborers including sweepers, gardeners, maids, day caretakers and messengers working in Nairobi, Mombasa and Kisumu are expected to earn a minimum of 13,573 shillings. That of the caretakers of buildings is 28,148 shillings.

But the reality has always been different, with many workers in these cadres only being paid 5,000 shillings, making it difficult for them to survive.

A survey by the Central Bank of Kenya, Financial Sector Deepening Kenya and KNBS showed that the livelihoods of 73.6% of Kenyan households deteriorated last year compared to 2019.

According to the survey, the economic situation has seen more than half of households skip meals, forgo medical care and run up school fee arrears.

Some 43.3% of households said they dipped into their savings, 40.6% reduced non-food budget, 38.9% reduced food expenditure, 22.1% sold assets while 29.6% turned to debt.

Around 54.2% said they had to give up buying medicine or going to the hospital, compared to 35.7% in this category in 2019. Many people turn to side concerts to supplement their employment income , but that did little to wean them off debt.

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