Determinants of Employment in the Formal and Informal Sectors of the Urban Areas of Kenya

Wambui Rose Wamuthenya

No RP_194, Research Papers from African Economic Research Consortium

Abstract: By applying a multinomial logit model and economic theory to labour force survey data, this study examines the determinants of formal and informal sector employment in the urban areas of Kenya. The fi ndings show that the determinants of employment in public, private and informal sectors of Kenya’s urban labour market vary by age cohort and gender. Special emphasis is placed on the importance of sex (being male rather thanfemale), marital status, household-headship and education variables, of which the first three illustrate the disadvantaged position of women in the labour market. Education has the strongest impact on formal sector employment, yet most women work in the informal sector despite signifi cant improvements in their education attainment. Two observations merit concern, high youth unemployment and gender imbalance in access to employment. Unemployment is particularly high amongst women, especially younger women. Younger women are either unemployed or employed in the inferior informal sector (in the sense of low income, precarious and unregulated forms of employment), as opposed to males in a similar age bracket who are likely to work inthe private sector. Overall results confi rm that the urban labour market is heterogeneous and reveal howlabour supply factors are valued in the labour market. They also indicate the existenceof sex discrimination in the labour market. The study raises the following questionsfor further research while identifying education and employment policy gaps: What specifi c skills or qualities do employers look for when recruiting new employees? Arethe recruitment practices gender balanced? Which training and skills are sought for what sectors? Is the current education system demand or supply driven, and does it equip graduates with adequate skills to become self-employed? Does the current policy environment and infrastructure encourage self-employment? What are the real constraints faced by women in fi nding reasonable work given their remarkably high unemployment rates? Answers to these questions have broad policy implications towards an achievement of gender balance in education, the labour market and poverty eradication.

Date: 2010-04
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