Effects of union wages on management staff wages in the banking industry in Kenya
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Date
2015
Authors
Kimathi, Mark Murithi
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The Kenya banking industry is made of the Central Bank of Kenya as the regulatory
authority, 44 banking institutions, 5 representative offices of foreign banks, 8 deposit
taking micro finance institutions, 2 credit reference bureaus and 112 foreign exchange
bureaus. Wages in the banking industry have been increasing over the years but they
have not kept pace with the rate of inflation. The average annual wage per employee in
the banking sector increased from Kes 10,424 in 1968 to Kes 1,385,773 in 2013.The
worst erosion in the purchasing power of banking employees' wages occurred from
1972 to 1994. The real average wage per employee per year declined from the highs of
Kes 1,300,152 in 1972 to the lows of Kes 364,196 in 1994. The real average wage per
employee per annum recovered from 1994 to 2008 .The real average wage increased
from Kes 364,196 to Kes 1,154,598 during this period. From 2008 to 2012, the real
average wage per employee per year declined to Kes 910,431. There was a slight
improvement in 2013 where the real average wage per employee was Kes 989,061. The
average wage of management staff increased from Kes 298,785 in 1994 to Kes
1,674,419 in 2009. From 2009, the average wage of management staff has been on a
decline to Kes 928,762 in 2013. The average wage for unionisable staff on the other
hand has been increasing gradually from Kes 82,068 in 1994 to Kes 1,333,296 in 2013.
Decline in workers' purchasing power affects employees in that they are not able to
maintain the standards of living they were accustomed to. This study sought to establish
the effect of union wages on management staff wages. This was undertaken by first
establishing the determinants of negotiated wages in the banking industry. A wage
model was fitted with time series data for the period 1968 to 2013 and the estimated
results showed that gross profit before tax, labour productivity and previous period
wage of unionisable staff were important determinants of negotiated wages. The other
variables, namely, legislated minimum wage, number of union staff, unemployment
rate, inflation rate and union density were statistically insignificant in determining
negotiated wages. To determine the effect of union wages on management staff wages
in the Kenya banking industry, a linear model was used in which wage of management
staff was regressed on gross profit before tax, labour productivity, number of
management staff, previous period wage of management staff, unemployment rate,
wage of unionisable staff and inflation rate. Time series data for the period 1968 to
2013 was used. The results revealed that number of management staff, gross profit
before tax, previous period wage of management staff and wage of unionisable staff
were statistically significant determinants of management staff wages. The other
variables were found to be statistically insignificant. The study confirms the need of
coming up with a way to measure labour productivity that is acceptable to all the
players in the banking industry. It also revealed the need to ensure that management
staff wages do not lag behind as the wages of unionisable staff rise.
Description
A research project submitted to the department of applied economics in partial fulfilment of the requirements for the award of the degree of master of economics (international trade and finance) of Kenyatta University.