Minimum wage restriction’s impact on employment in Kenya

Abstract

This study analyzes the impact of minimum wage restrictions on employment in Kenya, focusing on how these restrictions influence labor market outcomes. Kenya's workforce exceeds 19 million, with approximately 83% employed in the informal sector. This research explores the spillover effects of raising minimum wages on employment. Findings indicate that past minimum wage increases reduced formal sector employment by 2-3%, with manufacturing and agriculture being the most affected industries. Conversely, the informal sector absorbed displaced workers, albeit with lower wages and precarious conditions. Policy implications suggest that while minimum wage policies aim to improve worker welfare, they must balance economic growth and labor market stability. Gradual and sector-specific wage adjustments are recommended to minimize adverse employment effects, in cost-sensitive industries. Enhancing the quality of informal sector jobs and investing in skills training are critical for fostering economic resilience and sustainable employment opportunities.

Key Words: minimum wage regulations, labor supply, formal sector, informal sector, spillover effect, developing countries, developed countries, Supply and Demand