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The rising cost of living is introducing something on many workers’ payslips: consumption loans.
From buying foodstuffs to illuminating homes and educating children, the cost of living is rising sharply. But workers’ salaries and wages can only look on.
Taxes and inflation are moving at the speed of a sprinter in race, never stopping. But salaries are running like a marathoner; sometimes slowing to sip water and sometimes dropping out, never to finish the race.
The gap between these two speeds is a problem of the workers. Yet employers, the ones who are supposed ensure salaries keep up with the cost of living, have their own share of challenges.
Then there’s another group of people—the unemployed—who wish to graduate into the category of the employed. For them, even a glass half-empty would do. Yet, many companies are struggling with constrained cash flows and piling losses.
And so, even if they would have wanted to brighten up their employees’ faces this Labour Day, their financial muscles are telling them just one thing: cut costs.
The few employers who have the muscle to increase salaries are riding on the rising unemployment levels and weakened bargaining power in the labour market to hire talent for a song.
This is not a Covid-19-induced problem. The economic disruptions from the virus only took a fragile situation and made it worse. The Covid-19 disruptions in March 2020 took an already battered corporate Kenya and made it worse through layoffs and salary cuts.
Firms that have managed to keep all workers and maintain salaries or at least give some pay rise are fast becoming extreme outliers.
Many firms are yet to return to pre-Covid-19 levels. Others have opted to trim contributions towards workers’ pensions and withdrawn benefits such as lunch to shield themselves from total collapse.
Official data shows workers’ real wage earnings—a measure of income after accounting for the cost of goods and services people buy—has never posted an annual growth of more than 3.2 per cent in the seven years to 2020.
In fact, in 2020, workers’ real earnings shrunk by 1.5 per cent, meaning that their ability to buy goods and services that they had afforded in the previous year was weakened.
This means the rise in the prices of goods and services such as electricity, fuel, cooking oil, cooking gas, rent, water, charcoal, flour, rice, beef, cabbage, sukuma wiki and sugar has given workers a pay cut.
Workers in the accommodation and food service industry such as hotels took the biggest hit in 2020, with their real wages dropping by 9.7 per cent despite all the State interventions such as temporarily lowering value added tax (VAT) and pay as you earn (PAYE).
If prices are growing faster than wages, then people are getting inflation-adjusted pay cuts, making their lives difficult.
Latest data from the Kenya National Bureau of Statistics (KNBS) shows the cost of living hit a seven-month high of 6.74 per cent in April, from 5.6 per cent in March, putting a strain on household budgets.
This at a time when the Federation of Kenya Employers (FKE), an umbrella body for employers, ruled out minimum pay rises saying many firms are not yet out of the woods.
“It’s a reality that businesses have not recovered from Covid-19 and we still feel the impact of it and most enterprises are not back to where they were pre-covid pandemic,” said Jacqueline Mugo, chief executive at FKE, recently.
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.
Fulfilling what economists call a just wage—payment that is able to accommodate ones’ modest expenses and leave something for a rainy day— is just but a dream.
Government has, for instance, not reviewed the average monthly basic minimum wages in urban areas since 2018. And even if it did, these wages are hardly implemented.
General labourers including sweepers, gardeners, house servants, day watchmen and messengers working in Nairobi, Mombasa and Kisumu are supposed to earn a minimum of Sh13,573. That of caretakers of buildings is Sh28,148.
But the reality has always been different, with many workers in such cadres being paid as low as Sh5,000, complicating their survival.
A survey by Central Bank of Kenya, Financial Sector Deepening Kenya and KNBS had showed livelihoods of 73.6 per cent of Kenyan households worsened last year compared to 2019.
According to the survey, 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, 40.6 per cent cut the non-food budget, 38.9 per cent cut food spending, 22.1 per cent sold assets while 29.6 per cent turned to debts.
About 54.2 per cent said they had to forgo buying medicine or visiting a hospital compared to 35.7 per cent that was in this category in 2019. Many people are turning into side gigs to supplement employment income but this has done little to wean them from debts.
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