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The East African : March 17th 2014
6 The EastAfrican NEWS MARCH 15-21,2014 Needed: A comp≥ehensive wage policy ANALYSIS ELDAH ONSOMU, NANCY MWANGE AND OTHIENO NYANJOM Wages and benefits should be linked to the cost of living I t is now official: Kenya’s wage bill is unsustainable and has to be brought down. In managing it, it will be important to adopt a comprehensive approach that takes into account the formulation of coherent pay policy and structures that promote sustained economic growth and productivity, motivate and reward productivity, punish weak productivity, and eliminate wastages, such as payment of “ghost” workers. There are at least 679,177 public sector workers who include civil servants, teachers, Judiciary and Parliamentary staff, public universities workers, state corporations staff, constitutional commissions, the disciplined forces and county government employees. The public sector wage bill stands at Ksh521.6 billion ($6.2 billion) for financial year 2013/14, which is equivalent to 13.2 per cent of GDP and 50.4 per cent of national revenue, relative to internationally recommended levels of 7 per cent and 35 per cent respectively. Some of the factors which are contributing to the growing public wage bill are systemic inefficiencies in the payroll system, unsatisfactory productivity trends, inefficiencies and wastage and inequalities in the pay structure. The problem of rising wage bill is not unique to Kenya. Following the economic crisis in mid-2008, several countries have instituted fiscal adjustments to sustain their public wage bills. The comprehensive ap- proach to managing the wage bill should also increase overall efficiency in the govern- role in weakening the link between labour productivity and real wages. Wages and benefits should be linked to the costs of living through an established living wage for the country that meets at least the minimum living standards. Such a wage should be sufficient to meet the basic needs of workers and their families and some discretionary income and reasonable savings. Although freezing employ- W ment system, reduce the cost of politics and campaigns, instill fiscal discipline, tie public sector pay policy to NSSF reforms, ensure food security and quality service delivery especially in the health, transport, housing and education sectors. The following principles are a guide to success: Sustained economic growth and macro-economic performance; raised productivity; quality service delivery; efficiency in the utilisation of available resources; managing the cost of living; equity; and sealing avenues of waste and inefficiencies. Priority should be given to boosting productivity and sustained growth. This requires robust structural reforms, the creation of quality jobs and curbing underemployment. Productivity gains are necessary to recoup international competitiveness, sustain growth and reduce the sizeable external deficit. There should be a long- term co-integrating link between labour productivity and real wage. Efficient wages do not only determine employment but also affect employees’ productive behaviour or quality, which is why, under certain conditions, it is optimal for employers to set wages above the market clearing level to recruit, retain or motivate employees. Factors that may have short-term wage effects are price and wage rigidities and labour adjustment costs, employment protection, entry restrictions, and market regulations. The bargaining power of workers versus that of firms can also play an important ment and early retirement are options, they should be considered alongside the challenges which came with the rushed retrenchments of the 1990s. The government could stop hiring for non-essential positions and consolidate current employees and restructure and rationalise establishments across national and county governments. The government could con- tinue to hire in areas where skills are difficult to find, in the labour intensive sectors, and in positions that will generate immediate revenue. Voluntary early retirement could be considered. The writers are policy analysts at Kippra. Govt must f≥eeze hi≥ing and sala≥y inc≥ement fo≥ five yea≥s ANALYSIS STEPHEN MUCHIRI AND DANIEL MWAI “There are many public workers who are under-utilised.” pressure to finance personnel to support a devolved system of governance. Consequently, the government has to de- K velop multiple approaches to address the ballooning public sector wage bill. President Uhuru Kenyatta recently warned that Kenya’s recurrent expenditure is reaching unsustainable levels, squeezing out resources meant for development while expressing the need to keep the public wage bill in check. Kenya has nearly doubled the global benchmark for public wage bill to the country’s GDP. Over the past five years, the wage bill has nearly doubled to the current Ksh521.6 billion ($6.2 billion). Kenya has a public workforce of about 16 per 1,000 population, compared with an average of 6 per 1000 population in middle-income countries. So what options does Kenya have to ad- dress this wage problem? The first is to freeze the non-essential em- ployment and salary increments for the next five years, as the public sector wage bill has enya is faced with a perennial problem of an ever increasing public wage bill. The situation is expected to worsen with the increasing been rising at an annual average of 13 per cent over the past three years, fuelled by increased salaries and new hires. In the 2012/2013 financial year, the wage bill increased by 30 per cent, on account of hefty salaries awarded to lecturers, heath workers, teachers and the police. So, who will be serving Kenyans? The answer lies in a different question: After we reduced the number of ministries, where did the workforce go? The truth is there are many public workers spread across ministries who are under-utilised. Freezing non-essential employment will reduce the number of public servants by close to 20,000 annually (it is estimated that 12,000 employees retire from the public sector every year). The redeployment of public servants across ministries will not only cater for those staff lost annually but can also increase in productivity. The third option would be to freeze annual the increment of 4 per cent awarded to staff for two years. This would free about Ksh36 billion ($423 million) which can be invested in other areas. The fourth option would be to retire those above 55 years. Although this would have an impact on the pension fund, it would give the government an opportunity to hire young and dynamic professionals. Lastly, the government should consider re- ducing the size of staff attached to the senior officers. Stephen Muchiri is a Nairobi-based econo- mist while Daniel Mwai is an economics lecturer at the University of Nairobi.
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