WP 40 _Eduardo Zepeda_Kenya

This W orking Paper seeks to provide an overview of the link between em ploym ent and poverty in Kenya. Using descriptive statistics and regression techniques, it exam ines unem ploym ent, underem ploym ent, em ploym ent and labour earnings, and the link of all these with poverty. D ata are from the unit records of the Labour Force Survey of 1999/99, the latest available data at the tim e that this paper was written. The paper finds that Kenya faces daunting em ploym ent challenges. Unem ploym ent is high and heavily affects urban areas, particularly young workers (15-24 years old) and m ature educated workers (55-64 years old). M any of the unem ployed are wom en. In rural areas, the m ain problem is underem ploym ent, which also disproportionately affects wom en. Em ploym ent is dom inated by traditional farm ing and pastoralists activities in rural areas and by inform al activities in urban areas. Productive jobs are lim ited basically to wage em ploym ent, m ostly in the m odern public and private sectors concentrated in urban areas. Labour earnings are highly differentiated, starting from the high wages of em ployees in the m odern public and private sectors, followed by the earnings of inform al-sector workers, and ending with the low incom es of rural traditional farm ers. Returns to education are high, very high in the case of tertiary education—suggesting that skills are scarce and highly dem anded. The single two m ost im portant factors decreasing the probability of being poor are having higher education and having access to a paid job in the m odern sectors. The em ploym ent landscape corresponds to that of a stagnant econom y in which poor workers are in need of short-term social protection and all workers are in need of an effective long-term em ploym ent-focused developm ent strategy. Using m icro data, the paper sim ulates two program m es designed to provide incom e support to poor households: a child-transfer and a job-creation program m e. Results suggest that both program m es im prove the incom es of the poor and result in significant reductions in the depth of poverty. Sim ulations indicate that while the child-transfer program m e perform s better in rural areas, where dependency ratios are higher, the job-creation program m e m arkedly reduces poverty in urban areas, particularly am ong the extrem ely poor, and even, surprisingly, am ong poor fem ale workers.