Real wages shrink for fifth consecutive year

This is the fifth year in a row that workers have endured falling real wages, including a negative 4.1 percent in 2023.

The renewed squeeze on Kenyans’ living standards came in a year when the economy grew at the slowest pace since the Covid-19 pandemic four years ago, hobbled by floods that damaged crops, costly bank loans and disruptions that followed anti-government protests against the Finance Bill.

The average monthly real pay has fallen from Sh62,256 in 2020 to Sh55,451 last year, translating to an erosion of Sh6,805. 

Public employees were the biggest casualty, with their real wages dropping steeply from a monthly average of Sh57,441.67 in 2023 to Sh51,191.67 last year.

Inequality is also expected to increase in the next few years because the benefits that top up the incomes of low-paid workers have been frozen in cash terms.

“Real annual average earnings per employee in the private sector increased from Sh686.5 thousand in 2023 to Sh689.3 thousand in 2024. However, real average annual earnings for employees in the public sector declined to Sh614.3 thousand from Sh625.9 thousand over the same period,” says the Economic Survey 2025.

The falling real wages emerged in a year when new jobs were scarce, narrowing opportunities for workers seeking to change work in the hope of better pay.

The Kenyan economy added the fewest jobs since the 2020 Covid-19 pandemic.

About 782,300 new jobs were created last year, down from 848,100 new hires a year earlier, KNBS data says.

Ninety percent of jobs created in the year were from the informal sector, mirroring difficulties of corporate Kenya in creating quality employment for thousands of graduates leaving universities and colleges annually.

The economy created 75,000 formal jobs last year compared to 122,900—another low since the Covid-related economic hardships when 185,800 jobs were lost in 2020.

Read: Kenya’s economy slows down to 4.7pc in 2024

This is a blow to the more than one million young people who graduate from colleges and secondary schools.

The Federation of Kenya Employers (FKE) said workers’ compensation to cover inflation will resume when productivity starts growing faster than the cost of living measure.

The employers’ lobby said productivity in Kenya was “not just low, but is actually decreasing.”

The slow rate of erosion of wages last year was on account of falling inflation as favourable weather conditions led to improved crop harvests, prompting a drop in food prices.

In 2023, real wages stood at negative 4.1 percent, a period when the cost of living remained elevated due to costly fuel and food.
It stood at negative 3.2 percent in 2022 when average inflation was at 7.9 percent, the same level as last year.

Employers are warning it will take longer for pay raises to return to pre-pandemic levels, with firms fretting over business uncertainties despite the economic rebound.

The Treasury reckons that declining interest rates will lift Kenyan growth this year, which is forecast to grow at 5.4 percent.

The Central Bank of Kenya has slashed its benchmark rate by 300 basis points to 10 percent, signalling banks to lower the cost of credit, which is expected to increase loan supply.

Still, growth in 2025 will be tested by US President Donald Trump’s tariff war.

Planned spending cuts in the fiscal year starting July 1 may also weigh on Kenya’s growth this year.

Workers' disposable income has shrunk further on additional taxes and levies, including the housing tax and the controversial healthcare insurance levy.

The affordable housing law requires employers in the formal and informal sectors to deduct 1.5 percent of gross monthly pay to workers and match the contributions towards the housing levy.

The levy sparked an outcry from the opposition and many Kenyans, who feel burdened by the raft of taxes introduced under President William Ruto's administration.

It was implemented nearly at the same time as the healthcare insurance levy, which requires people to contribute 2.75 percent of their monthly salaries to a social healthcare programme.

Contributions to the National Social Security Fund (NSSF) have also been increased twice in under two years.

Thousands of workers have breached the legal requirement that demands they take home at least a third of their salary following multiple cuts on their payslips.

Employers reckon that thousands of workers take home less than a third of their pay when pre-existing loan repayment obligations are accounted for.

Workers whose loans are not deducted from their payrolls are defaulting amid costly debt.

→[email protected]