Inflation drives up wages

Economy

Inflation drives up wages


Jacqueline Mugo, Executive Director of the Federation of Kenya Employers. FILE PHOTO | NMG

Pressure for higher wages is the latest driver of operational costs for Kenyan businesses in a steeply inflationary environment that has slashed staff salaries, prompting them to demand a raise.

Several companies reported a growing queue of workers demanding higher wages amid the fastest rise in inflation in five years.

This is supported by findings from Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI) – a closely watched monthly survey of the private sector – suggesting that companies have increased their spending on labor for five consecutive months since March.

Wage increases affect all key economic sectors, manufacturing, construction, agriculture, wholesale and retail trade as well as services high on the list of sectors facing a wave of rising labor costs. labor linked to inflation.

“Like Haco, one of our biggest cost increases has been labor costs of around 6% [year-to-date]. Labor costs…will continue to be a major driver of our operating costs for the remainder of the year,” said Mary-Ann Musangi, Managing Director of Haco Industries.

Inflation rose to 8.3% last month, from 7.9% in June, due to the lingering impact of Russia’s war on Ukraine, which has disrupted global supply chains and affected the availability of products such as wheat, edible oil and fertilizers.

This has been compounded by below-average rainfall since last year and a weakened shilling, which last Wednesday lost 5.93% of its value against the bullish US dollar since the start of the year in a depressed economy. net import.

“It’s a difficult time for everyone in the market. We are aligned with expectations based on a May 1 directive on wage increases,” said Sekar Ramamoorthy, Managing Director of PZ Cussons East Africa.

“Fortunately, Kenya is a surplus labor market in terms of manufacturing and business skills. Therefore, the supply of labor exceeds the demand.

July marked the second month in a row that the year-on-year cost-of-living measure exceeded the government’s 7.5% upper limit target, a trend last seen a year ago. five years in June 2017 when it reached 9.21%.

Soaring commodity costs have shrunk the basket of households who have already been forced to cut back on non-essential spending amid negative real wage growth.

On May 1, Workers’ Day, President Uhuru Kenyatta raised the minimum wage by 12%, offering relief to workers who had gone three years without a pay review despite employer protests.

Until this year, the government had not reviewed the minimum wage since 2018 despite rising inflation which averaged 5.53% between 2019 and 2021. Rising inflation is eroding power workers’ purchase if it is not compensated by a salary increase.

The Federation of Kenya Employers (FKE), a lobby, has insisted that economic fundamentals do not support an increase in the minimum wage – which largely affects low-skilled jobs like cashiers, drivers, security guards , messengers, cleaners, domestic helpers and gardeners.

An increase in minimum wages usually forms the basis of pressure for higher wages by other categories of workers through collective agreements.

“Labour is a fixed cost and so this (wage increase) is a monthly hit on the payroll, but we will do what we can to see what adjustments to make to comply with the Head of State’s directive,” said FKE executive director Jacqueline Mugo. after the presidential directive.

“Employment is a big challenge for this country and we constantly have to find a balance [between raising pay and hiring more workers].”

The latest data from the Kenya National Bureau of Statistics shows that average earnings in the private sector for the year to June 2021 fell by 3.83% to 60,031 shillings after adjusting for inflation.

It marked the second year in a row that real wages for private sector workers fell, after falling 0.59% the previous year to 62,425.97 shillings.

Most employers have in the past adjusted wages to compensate for annual inflation growth. However, data from the KNBS suggests that they are no longer keeping pace with the rising cost of living.

An analysis of monthly PMI surveys – based on feedback from around 400 business leaders across a range of key private sector industries – suggests companies that have raised wages slightly this year have done so to ‘motivate workers’ without corresponding to changes in the cost of living. The majority of companies kept the salary stable.

“Employers usually try to adjust wages for inflation, but it’s proving difficult. Since 2020, we have not been able to keep pace with the rising cost of living when it comes to wages,” said a human resources director at one of the largest profitable companies in the world recently. country on condition of anonymity because he is not authorized to speak. to the press.

KNBS data indicates that basic incomes for private sector workers grew at the slowest pace in 11 years in 2021 after companies resumed hiring following pandemic-induced layoffs and pay cuts in 2020.

Accommodation and food service workers – among the hardest hit by pandemic-induced layoffs – achieved the largest increase in average monthly gross wages during the reporting period, at a rate of 4.6% to 37,393.68 Sh.

They were followed by those in the education sector where employers raised average nominal monthly wages by 3.06% to 84,223 shillings, mining (2.5% to 55,512.51 shillings) and manufacturing (2.16% to 47,530.92 shillings).

Workers in the agricultural sector, which contracted by 0.2% last year due to bad weather, saw the slowest increase in average monthly wages at the rate of 0.3% to Sh31,393.68, followed by construction at 0.77% at Sh63,693.73.

Workers in the transport sector obtained on average a salary increase of 1.2% to 128,010.81 Sh, energy (1.2% to 173,103.54 Sh), real estate (1. 24% to Sh27,280.03) and financial services (1.42% to Sh173,505.61). .

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