The implications of minimum wage increment

Every year, the month of May is yet another time that Kenyans, particularly those in the minimum wage bracket, anticipate an increment.

After such increments are announced by the government, celebrations are normally heard from all possible media…the television, the radios, the newspapers, the social media, you name it! These increments are aimed at improving the standard of living of the minimum wage earners with the aim of eradicating poverty. However, have we asked ourselves why this proverbial annual minimum wage increment has not been able to solve the poverty problem let alone bridging the ever widening gap between the rich and the poor?

According to the World Bank, at least 46% of Kenyans live below the poverty line. This basically means that they earn less than a dollar in a day. Why the staggering statistics when the government and indeed COTU have been pushing for these increments in order to reduce the poverty levels? It is either the employers are not implementing such directives, or the annual minimum wage increment policies are misguided.

Successive governments have used this tactic to gain political mileage, yet this is a real economic problem. As this increment takes effect, those affected the most are left untargeted: the low-skilled and unemployed. This will end up building bigger barriers for those individuals without jobs. Currently, the rate of unemployment is at 40%, translating to 16 million Kenyans with no formal employment. These are the people who need policies that will help them move from poverty.

Countless researches have affirmed the fact that increasing the minimum wage will not only destroy existing jobs, but will also slow down job creation. With more individuals out of work, this could end up pushing even more Kenyans into poverty, as more and more job opportunities will never see the light of day.

“Why would this happen?” one may ask. While the Government is keen on increasing the minimum wage, that money has to come from someplace. If one of the solutions into minimizing poverty in Kenya is ensuring more and more Kenyans are employed, then minimum wage increment will not solve this problem.

Most of the employees earning minimum wage are from small businesses or even new businesses that are still finding solid ground to stand on. This will in turn force such employers to dig deeper into their pockets, and having more minimum wage earners will simply not be a priority. This is because the money that would have been paid to the new job earners will instead be added to existing minimum wagers. Therefore, this will make it even harder for those with low skills to find employment. Even though the minimum wagers could be getting a higher pay, this doesn’t cushion them from the possible inflation, which could result in a high cost of living, and in turn insignificant improvement in their standard of living.

Most of the companies whose lowest paid employees earn decent salaries are either multinationals or well established businesses. It’s therefore imperative that what the government should strive for is to enable SMEs to flourish, and afford to pay their employees decent salaries since these have the majority of the minimum wage earners. In addition, once the SMEs expand they employ more people. Nonetheless, until that time when our leaders will genuinely want to solve the unemployment and poverty problems, the politics at play at the moment will not solve these issues.