National wage policy is an absurdity dressed up in corporate language
What you need to know:
Last week, the Kenyan press reported that a number of private sector collectives had asked the government to set up a national wages and remuneration policy.
A rough scan through the national press and an internal database has shown that in the last three years, labour unions in the public sector have made at least seven calls for withdrawal of labour.
A national wage policy is not the remedy for the fact that wages and productivity are both moving in undesirable directions.
There is little agreement among Kenyans that the public sector wage bill is high enough to warrant quick and considered action. One sees this in the reasoning that because most Kenyans in important professions underwent training from schools, teachers are therefore entitled to claims on the public budget, and that the executive should yield irrespective of the affordability of the demands.
This inconsistency in support for lower taxes and a threefold increment in the wages of teachers is evidence of incomplete understanding of the state of public finances generally, and the situation with the wage bill in Kenya.
Whatever one’s inclination, it is clear that a wage bill growing at upwards of 18 per cent annually will culminate in sharp pain soon.
Private enterprises are undoubtedly more flexible and are usually more sensible in weighing what proportion of their profits and revenues should be dedicated to wages. However, that alone should not lead one to the conclusion that all that they urge the government to do about wages and employment represents sound economic reasoning.
Last week, the Kenyan press reported that a number of private sector collectives had asked the government to set up a national wage and remuneration policy. Implied in the statement was that Kenya has high inflation and low productivity, meaning that the government should pre-empt the possibility that workers in the private and public sectors will actively seek wage increases every year.
This statement is unbelievable, and the IEA-Kenya will be polling officers charged with hiring and managing human resources to find out whether this idea really has currency.
However, I must pre-empt the findings by saying that it is a very bad idea and on an ascending scale of 1 to 5 where 1 is best, it is nearly as bad as asking for nationalisation of industry. It gets a straight 5 for worst.
Now, it is perfectly understandable for firms to seek government support to ensure peace in industrial relations, with a focus on productivity of workers and sensible wage demands.
The imposition of a wage policy that binds all firms in Kenya, however, means that private firms would be abandoning their initiative in directly negotiating wages, to be guided instead by what bureaucrats in the public sector consider to be good wage policy.
Autonomy in private wage setting is a constitutional right that is guaranteed to both employees and employers. It serves nobody’s interests for a one-size-fits-all policy to be imposed by the government.
Separate from the question of firm autonomy, it appears that the private sector has chosen the wrong institution to superintend industrial relations in Kenya. A cursory scan through the national press and an internal database has shown that in the last three years, labour unions in the public sector have made at least seven calls for withdrawal of labour.
What this illustrates is that the mechanism for handling labour disputes in the public sector is so broken that the private sector should be teaching the public sector how to handle wage matters.
Wage demands, aggressive negotiation and the public posturing seen in the public sector pervading all the other sectors would be the very unpleasant, if unintended, consequence of a national wages policy.
The call for a national wage policy that governs industrial relations was influenced by legitimate concerns about low productivity and the effects of inflation on the demand for increased wages.
MANAGE INFLATION BETTER
The solution, however, seems to be to try and use the government’s ability to respond by mandating a uniform wage policy. It remains difficult to tell why the solution was so far removed from the problem, but that is unsurprising because economic connections between employment, wages and inflation are not straightforward in Kenya or elsewhere.
A proposal with far better chances of success would require government competence in managing inflation, and action leading to a lower cost of living. Indeed, Kenya’s private sector is well placed to drive an informed conversation on the effects of high inflation on the costs of living in Kenya.
A national wage policy is not the remedy for the fact that wages and productivity are both moving in undesirable directions.
Private sector firms vary in size and positioning, hence flexibility in crafting a wage policy that can lead to recruitment of employees is indispensable. Bad economics dressed in the success of corporate captains does not lead to good policy.
Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame
