Effects of union wages on management staff wages in the banking industry in Kenya

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.