Minimum Wages in Kenya

Abstract

This paper examines the performance of minimum wage legislation in Kenya, both in terms of its coverage and enforcement as well as in terms of their associations with wages and employment. Our findings based on the 1998/99 labor force data—the last labor force survey available-- indicate that minimum wages were better enforced and had stronger effects in the urban areas than in the agriculture industry. More specifically, our results suggest that (i) compliance rates were higher in urban areas, (ii) minimum wages are positively associated with wages of unskilled workers and women in urban areas, while no such relationship is found for workers in agriculture, and (iii) higher minimum wages were associated with a lower share of workers in formal activities in a given occupation and location. Our estimates indicate that a 10 percent point increase in the minimum to median wage ratio could be associated with a decline in the share of formal employment of between 1.2-5.6 percentage points –and an increase of between 2.7-5.9 points in the share of self-employment.