Minimum wage policy in Kenya: is it significant in enhancing labour force employment?
by Asawo Kimberly Adhiambo; Oleche Martine Odhiambo
International Journal of Economic Policy in Emerging Economies (IJEPEE), Vol. 17, No. 3, 2023

Abstract: The research employs time series data spanning 1980 to 2016 to examine effect of minimum wage on employment levels in Kenya. We adopt a linear model postulating a linear association among the factors under review. During diagnosis of data, cointegration test postulates a short-run relationship between the variables, leading to adoption of autoregressive distributed lag model (ARDL); short-run model. Research findings indicate a positive significant effect of previous year's minimum wage on current employment levels in Kenya in the short-run with no long-run association. The shorter-term effect is minute, that is, a 100% increase in previous period's minimum wages would increase current employment by 9%. Lack of a long run relationship between minimum wages and employment levels indicates instability in use of minimum wage as a long-term policy measure to improve employment levels. Therefore, explicit employment of minimum wage policy, as a long-term strategy, to increase labour employment levels is discouraged. Increases in minimum wages should be kept at a minimum, less frequent timeframe, to avoid negative unintended effects.

Online publication date: Mon, 22-May-2023

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