This archive report was first published on 6 July 2020.
Published on July 6, 2020, a recent report by the Kenya National Bureau of Statistics (KNBS) revealed that over 770,000 youth lost their jobs in the first three months of the year, surpassing the number of jobs created in 2019.
As the country grapples with the economic impact of Covid-19, the formal sector has been heavily hit, with many firms struggling to pay salaries. A mid-sized firm, Scanad, reported that more than half of the employed population have received a salary cut, and an estimated 435,000 have lost jobs.
According to Tony Watima, Kenya's formal labour market is inflexible and unstable. He attributes this to several factors, including competitive salaried wages that are not aligned with productivity output, making labour more expensive and unsustainable in the long term.
Watima also points out that despite nominal GDP growth averaging impressive rates for the last eight years, average income has not adjusted, leading to unsustainable wage adjustments. This has resulted in employees in the formal market being pushed out to the informal market, where opportunities are scarce.
With the labour market in disarray, a disruptive correction was inevitable, and it has come in the form of Covid-19. The government's stability-oriented macro-economic policies have been ineffective in saving jobs and companies.
What is happening ideally is the market self-correcting, with massive lay-offs in the formal sector being replaced with less expensive labour. This can be compared to the eagle mooting analogy, where an old eagle finds it difficult to fly due to heavy wings and plucks them to renew feathers and soar again.
Kenya Airways (KQ) should take a cue from this analogy and decisively take action to correct its inefficiencies, such as paying pilots twice as much as their Ethiopian Airlines counterparts who fly 35 percent more hours. This is an unsustainable situation that needs to be addressed.
