•Higher labour productivity indicates that workers are more efficient in producing output, often resulting from better skills, technology, or organizational methods.
•This even as the overall productivity levels in Kenya's informal sector continued to remain low, with workers receiving limited returns for their input.
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A new survey has shown that most Kenyans working for Medium-sized enterprises in the country’s informal sector are earning less than Sh17,200 monthly, way lower than the minimum wage set in 2016.
The report titled Kenya Economic Report 2024 released by public policy body KIPPRA says that despite the sector recording vibrant growth in 2023, the benefits are yet to flow to the workers.
This is even as the overall productivity levels in Kenya's informal sector continued to remain low, with workers receiving limited returns for their input.
Labour productivity which in Kenya is quantified moneywise, represents the average value of goods or services produced by one worker in that sector during a specific period.
Higher labour productivity indicates that workers are more efficient in producing output, often resulting from better skills, technology, or organizational methods.
Conversely, low labor productivity suggests inefficiencies, meaning workers produce less output than their input.
KIPPRA says that the average labour productivity is highest in the services sector at Sh11,953.5, followed by agriculture at Sh10,503.7, and industry at Sh8,917.4.
The informal sector, dominated by micro, small, and medium enterprises (MSEs), shows significant variation in labour productivity.
Medium-sized enterprises reported higher productivity (Sh11,818.1) compared to small (Sh11,490.8) and micro enterprises (Sh6,095.4).
“Income earnings in the enterprises influence the wages being paid to their employees. Consequently, the monthly wage paid by informal enterprises is below the recommended minimum wage,” reads the report in part.
“Thus, most skilled, and nonskilled informal workers earn below the 2016 statutory minimum wage rate for a labourer of Sh17,200, Sh15,979.5 and Sh13,592.7 for cities, former municipalities, and other cities, respectively,” KIPPRA said.
The public policy think tank says that the figure is gradually growing and as of 2022, wages increased slightly, with an increase in several workers in cities earning Sh23,868, in former municipalities Sh22,174, and other towns Sh18,862.
The location of the businesses also emerged as a key influence on the level of productivity, workers in market stalls were found to be more productive, with an average productivity of Sh15,880, compared to open markets (Sh13,054) and Jua Kali sheds (Sh4,929).
The report also noted that businesses engaging in product innovation showed marginally higher productivity (Sh11,771) compared to those focusing on process innovation (Sh11,768).
According to a 2021 World Bank report, Labour productivity is influenced by several factors, including expenditure on research for development, type of skills available in the labour market, availability of on-job training, technology use, access to electricity, and capital investment.
The relevance of these drivers has evolved, with investment in research for development driving innovation and technology use, investment in human capital through on-the-job training, and skills development gaining momentum.
“Higher labour productivity in medium firms is because of their higher expenditures on research for development and innovation, where they spend 2.1 per cent of their total firm’s expenditure on R4D, which allows the firms to engage in efficient production processes, resulting in high labour productivity,” reads the KIPPRA report.
Despite higher labour productivity in medium manufacturing firms, micro, and smaller firms benefit from the intensive use of information and communication technologies (ICT), digital tools, and innovations, and investment in research for development and training (OECD, 2021).