Addressing the Employment-Poverty Nexus in Kenya: Comparing Cash-Transfer and Job-Creation Programmes

Abstract

This Working Paper seeks to provide an overview of the link between employment and poverty in Kenya. Using descriptive statistics and regression techniques, it examines unemployment, underemployment, employment and labour earnings, and the link of all these with poverty. Data are from the unit records of the Labour Force Survey of 1999/99, the latest available data at the time that this paper was written. The paper finds that Kenya faces daunting employment challenges. Unemployment is high and heavily affects urban areas, particularly young workers (15-24 years old) and mature educated workers (55-64 years old). Many of the unemployed are women. In rural areas, the main problem is underemployment, which also disproportionately affects women. Employment is dominated by traditional farming and pastoralists activities in rural areas and by informal activities in urban areas. Productive jobs are limited basically to wage employment, mostly in the modern public and private sectors concentrated in urban areas. Labour earnings are highly differentiated, starting from the high wages of employees in the modern public and private sectors, followed by the earnings of informal-sector workers, and ending with the low incomes of rural traditional farmers. Returns to education are high, very high in the case of tertiary education—suggesting that skills are scarce and highly demanded. The single two most important factors decreasing the probability of being poor are having higher education and having access to a paid job in the modern sectors. The employment landscape corresponds to that of a stagnant economy in which poor workers are in need of short-term social protection and all workers are in need of an effective long-term employment-focused development strategy. Using micro data, the paper simulates two programmes designed to provide income support to poor households: a child-transfer and a job-creation programme. Results suggest that both programmes improve the incomes of the poor and result in significant reductions in the depth of poverty. Simulations indicate that while the child-transfer programme performs better in rural areas, where dependency ratios are higher, the job-creation programme markedly reduces poverty in urban areas, particularly among the extremely poor, and even, surprisingly, among poor female workers