The rising cost of living is putting something on the payroll of many workers: consumer credit.
From buying groceries to lighting homes to educating children, the cost of living is skyrocketing. But workers’ wages and salaries can only stand and watch.
Taxes and inflation move at the speed of a sprinter in a race and never stop. But salaries run like a marathon runner; Sometimes he slows down to drink water and other times he breaks off never to finish the race.
The gap between these two speeds is a problem for workers. However, employers tasked with keeping salaries in line with the cost of living have their own challenges.
Then there is another group of people – the unemployed – who want to move up into the employed category. Even a half-empty glass was enough for her. Still, many companies are struggling with constrained cash flows and mounting losses.
And even if they wanted to brighten the faces of their employees on Labor Day, their finance muscles are telling them only one thing: cut costs.
The few employers who have the power to raise salaries are taking advantage of rising unemployment and weakened bargaining power in the job market to hire talent for a song.
This is not a problem caused by Covid-19. The economic disruptions caused by the virus have only made a fragile situation worse. The Covid-19 disruptions of March 2020 took an already ailing Kenyan company and made it worse with layoffs and pay cuts.
Companies that have managed to retain all employees and maintain salaries, or at least provide some raise, quickly become extreme outliers.
Many companies have yet to return to pre-Covid-19 levels. Others have chosen to slash workers’ pension contributions and eliminate benefits like lunch to save themselves from total collapse.
Official data shows that workers’ real wages – a measure of income after accounting for the cost of goods and services people buy – never recorded annual growth of more than 3.2 percent in the seven years to 2020.
In fact, workers’ real earnings shrank by 1.5 percent in 2020, meaning their ability to buy goods and services they afforded the previous year was weakened.
This means that the rise in the prices of goods and services such as electricity, fuel, cooking oil, cooking gas, rent, water, charcoal, flour, rice, beef, cabbage, sukuma wiki and sugar has brought workers a wage cut.
Workers in the accommodation and catering sectors such as hotels were hit the hardest in 2020 as their real wages increased despite all government interventions such as the temporary reduction in Value Added Tax (VAT).
When prices rise faster than wages, people get inflation-adjusted pay cuts that make life miserable for them.
Latest data from the Kenya Bureau of Statistics (KNBS) shows that the cost of living hit a seven-month high of 6.74 percent in April, up from 5.6 percent in March, weighing on household budgets.
This comes at a time when the Federation of Kenya Employers (FKE), an umbrella organization for employers, has ruled out minimum wage increases, saying many companies are not yet out of the woods.
“The reality is that businesses have not recovered from Covid-19 and we are still feeling the effects of that, and most businesses are not back to where they were before the Covid pandemic,” said Jacqueline Mugo, chief executive at FKE, recently.
Inflation primarily affects low-income earners, who spend more money on fuel, groceries and other items that have risen faster in price in the recent past, partly on new taxes.
Delivering what economists call a fair wage — pay able to cover modest expenses and leave something for bad times — is just a dream.
For example, the government has not reviewed average monthly basic minimum wages in urban areas since 2018. And even if they do, these wages are hardly implemented.
General workers, including sweepers, gardeners, domestic workers, day watchmen and messengers working in Nairobi, Mombasa and Kisumu are said to earn at least Sh13,573. The building’s caretaker is Sh28,148.
But the reality has always been different as many workers in such cadres are paid as low as Sh5,000, making their survival difficult.
A survey by the Central Bank of Kenya, Financial Sector Deepening Kenya and KNBS found that the livelihoods of 73.6 percent of Kenyan households had deteriorated last year compared to 2019.
According to the survey, the economic situation has caused more than half of households to skip meals, go without medical care and accumulate arrears in school fees.
About 43.3 percent of households said they tapped into their savings, 40.6 percent cut the non-food budget, 38.9 percent cut food spending, 22.1 percent sold assets, while 29.6 percent took on debt .
About 54.2 percent said they did not buy medication or visit a hospital, compared to 35.7 percent who were in that category in 2019. Many people switch to part-time jobs to supplement wages, but this has done little to wean them off debt.