Discussion Paper No. 31 of 2004 on Globalisation and the Labour Market in Kenya

Abstract

This paper analyses the effect of globalisation on the labour market outcomes in Kenya using micro datasets complemented with secondary data. The analysis shows that during the economic reform period (1970s to 1990s), employment creation dramatically increased in the informal sector but most of the jobs created are more insecure. The jobs created also pay less compared with jobs lost in the formal sector. Labour force participation in urban areas increased for both men and women but declined in rural areas especially for women. Unemployment also increased both in rural and urban areas and especially for women in urban areas. The increase in unemployment and the expansion in informal sector employment is partly due to retrenchment in the civil service, increased school dropout, collapse of some private firms, and retrenchment in other private firms due to stiff competition from imports following trade liberalization. The reform period also experienced a shift in labour demand in favour of highly skilled labour, a decline in permanent full-time workers, and an increase in part-time workers and casual workers. This signals a cost-cutting strategy where firms replace permanent employees with part-time and casual workers to make savings in terms of paying less benefits. Real earnings for all workers declined during the reform period until the mid-1990s when they started increasing again. Less skilled workers experienced loss in earnings compared with highly skilled workers as shown by increasing private returns to university education and declining returns to primary and secondary school education. More people are likely to become poor during the globalisation period due to increased unemployment, (especially of women), insecure jobs in the informal sector, and decreasing earnings for the mainly less-skilled labour. Globalisation is therefore likely to be associated with the worsening poverty in Kenya.