The Effects of Minimum Wage on Agriculture Sector Employment in Kenya

Abstract

The discussion on employment influence of minimum wage is still heated. There is still no consensus among the empirical studies that have been done both for the developed and developing countries. This paper adds to the existing literature by analyzing the effects of minimum wage on agriculture employment in Kenya. It uses time series data from KNBS and WDI for the years 1991 to 2021. The paper’s main aim was to establish the influence of minimum wage on employment in Kenya's agriculture sector labor market and provide insights for policymakers on the implications of minimum wage policies on employment in the agriculture sector. The Labour demand function was employed in examining the influence of agricultural minimum wage on employment. The labour demand function expresses employment as a function of the price of the factors of production that is wages and interest rates for labour and capital respectively and the output. The link between the variables was examined using the ARDL model. The study's findings showed an insignificant short-term correlation and a negative long-term connection between employment in agriculture and the real minimum wage. The study established that a 1% rise in minimum wage decreased agriculture employment by 0.29%. The study concluded that minimum wage reduces agriculture employment in the long-run. The lagged employment had important negative influence on the current employment. The study found that a 1% increase in the previous level of employment led to a 0.08% decrease in the current employment. The other independent variables, that is real interest rates and agriculture value added had insignificant relationship with the agriculture employment both in the long and short-term.