The effects of minimum wages on the labor market and income distribution in Kenya: A CGE analysis

Tabitha Mwangi,, Florence Nelima Simiyu, Lulit Mitik Beyene and Albert Onderi

Working Papers MPIA from PEP-MPIA

Abstract: In Kenya, there has been increased debate on the impact of minimum wage increases and pay disparities between sectors. Long-term differences in earnings across sectors and different regions (urban and rural) are reflected through higher poverty rates in rural areas, especially among wage earners. This study evaluates the effects of minimum wages on labor and its impact on growth. The study uses the single country static model, the PEP-1-1 model and the Social Accounting Matrix for Kenya for the year 2009. The key research questions are to assess the effects of minimum wages on rural or urban area labor markets, labor migration, and income distribution. To achieve this, the study simulates three scenarios: increases in minimum wages for formal workers in urban and rural areas at the same rate of 5%, different rates (10% rural and 5% urban), and a cut in the minimum wages in both regions. The findings indicate that increases in wage fuel the migration of labor from rural to urban areas, and stifles the expansion of the economy. A rise in minimum wages has an overall negative effect on incomes of rural households while benefiting urban households, which contributes to increased inequality. A fall in real minimum wages on the other hand, is supportive of output and employment growth.

Keywords: Minimum wage; labor market; migration; income distribution; CGE (search for similar items in EconPapers)
JEL-codes: C68 E64 J38 J61 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://portal.pep-net.org/document/download/30810 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:mpiacr:2017-22

Access Statistics for this paper

More papers in Working Papers MPIA from PEP-MPIA Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().