Earnings and Employment Sector Choice in Kenya

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Nyaga, Robert Kivuti
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African Economic Research consortium
The level of participation in employment and wages paid in the labour market can be assessed by comparing relative sectoral labour compensation amounts, participation rates and skill distribution of the workforce. In addition, the level of participation in employment and differences in wages paid in any given sector are affected by both individual factors and sector-specific factors. The study estimates a multinomial logit model and selection-corrected earnings models to determine participation and earnings in various employment sectors. This study finds clear differences in the formal private and public employment sectors relative to the vast informal sector. Regression results confirm that education is the key determinant of both participation and wage earnings. Attainment of higher levels of education is related to a greater likelihood of working in private and public sectors and earning higher wages in these sectors, relative to working in the informal sector. Gender disaggregated participation and earnings models show that in contrast to men, university education has a considerable effect on women’s participation and earnings in the formal sectors. Education attainment however, a primary factor in participation and earnings determination, weakly explains participation in the typically low-wage informal sector whose stable employment growth coincides with the stagnation in the public and private sectors. Even with its characteristic low wages, to many job seekers the informal sector is where jobs can still be found.