Minimum Wages in Kenya Mabel Andalón - Index of - IZA

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Minimum Wages in Kenya Mabel Andalón Cornell University Carmen Pagés Inter-American Development Bank and IZA Discussion Paper No. 3390 March 2008 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: iza@iza.org Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.
IZA Discussion Paper No. 3390 March 2008 ABSTRACT Minimum Wages in Kenya * 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 implications for wages and employment. Our findings based on the 1998/99 labor force data – the last labor force survey available – indicate that minimum wages, which, in principle, apply to all salaried employees, were better enforced and had stronger effects in the non-agricultural industry than in the agricultural one. More specifically, our results suggest that (i) compliance rates were higher in occupations other than agriculture, (ii) minimum wages were positively associated with wages of low-educated workers and women in non-agricultural activities, 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 selfemployment. JEL Classification: J23, J31, J38 Keywords: minimum wages, employment, wage, Kenya Corresponding author: Carmen Pagés Inter-American Development Bank 1300 New York Avenue Washington, D.C. 20577 USA E-mail: Carmenpag@iadb.org * Background work for this paper was performed while Carmen Pagés was at the World Bank. The authors are deeply indebted to Sara Lemos, Sumana Dhar, Gary Fields and the Government of Kenya for valuable comments and discussions. The authors are also grateful to participants at the Second IZA/World Bank Conference on Employment and Development (Bonn, 2007) and at the Cornell/Michigan Conference on Labor Markets in Developing and Transition Economies: Emerging Policy and Analytical Issues (Ann Arbor, 2007)
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