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Addressing the employment-poverty Nexus in Kenya:
Comparing cash-transfer and job-creation programmes1

Working Paper number 40

Eduardo Zepeda2

United Nations Development Programme (UNDP), International Poverty Centre (IPC)

October 2007

SARPN acknowledges the International Poverty Centre as a source of this document:
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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.


Kenya entered the Twenty-First Century facing the challenge of having to accelerate economic growth and rapidly reducing poverty. Faltering growth in the country over the previous decade led, together with rising inequality, to an increase in poverty from its already high level in the early 1990s. Despite private investment in agriculture, manufacturing and services, which has created some jobs with a reasonable level of productivity, wages and working conditions, despite Kenya’s important role in some export markets and its receipt of sizeable inflows of visitors for tourism and business purposes, the overall employment situation has deteriorated over the last 15 years. Employment has continued to lag behind a growing population.

The majority of Kenyans continue to live in rural areas and depend on agricultural and pastoralist activities, supplemented by various informally organised activities. The growing urban population depends, to a large extent, on informal labour markets to make a living since jobs in modern sectors are scarce. The past inability to generate productive employment has created formidable challenges for Kenya.

Kenya needs to grow, no doubt. Indeed, the economic recovery since the early 2000s has brought hope. But Kenya needs not just any growth, it needs pro-poor growth: it needs fast average growth and even faster growth of the income of poor households. Kenya has undertaken economic reforms, has increased exports and has been able to control inflation. But it needs to embark on an employment-focused development strategy while, at the same time, acting now to support the incomes of the poor.

This Working Paper seeks to provide a picture of the link between employment and poverty in Kenya. It examines the ability of employment to increase incomes and enable families to escape from poverty, and proposes policies to achieve these ends. It also simulates the potential impact of two targeted programmes to support the incomes of the poor while an employment-based development strategy unfolds and delivers results. For its analysis, this paper uses the unit record data of the Labour Force Survey of 1999/99, the latest available data at the time of its writing.

  1. The author is grateful to Celio da Silva for excellent research assistance and to Azizur Rahman Khan, the external peer reviewer of this paper, and Terry McKinley, Acting Director of IPC and the internal peer reviewer of this paper, for their very useful comments and suggestions. I am also grateful to Mwangi Githinji, James Heinz and Jacob Omolo for comments on an earlier draft and especially to Robert Pollin, who led the mission to Kenya that initiated this project. The author is particularly grateful to Antony K. M. Kilele, Director of the Kenya National Bureau of Statistics and to its staff, particularly Peter Nyongesa and Patrick Kakinyi, for their valuable support.
  2. International Poverty Centre.

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