Policy Brief No. 03 of 2015 on Wage Disparities in the Formal Sectors: Policy Options for Kenya

Abstract

Wage employment in the public and private sectors accounts for a significant proportion of formal employment in most developing countries. In Kenya, nearly 655,000 wage earners were employed in the public sector in 2012, whereas the remaining 1.5 million were employed in the private sector. While the sectors employ highly educated workers, the ability to attract and retain highly skilled personnel is a major challenge for both the public and private sectors. Unlike the private sector, the public sector is not profit-driven. The nature of work is service-oriented with demands such as producing and implementing good policies including wage determination policy. Over time, the public sector has relied on fragmented structures of determining wages, such as the minimum wage regulation, administered wage setting, and flexible and collective bargaining approaches to determine the formal sector wages. These wage setting mechanisms have not, however, promoted productivity and efficiency in the public formal sectors. Instead, they have propagated unprecedented wage differences leading to wage penalties in some sectors of the economy and also within the sub-sectors.