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Job Creation versus Cash Transfers in Kenya
August 2007
Eduardo Zepeda
International Poverty Centre

After a long period of economic regression, the Kenyan economy has recently started to recover, raising hopes for reducing poverty. Buoyed by this recovery, the Economic Recovery Strategy of the Kenyan Government has the ambitious goal of creating 500,000 jobs per year. But if these jobs are going to be reasonably productive, Kenya will need to grow more rapidly than 6 per cent per year.

However, there is no guarantee that poor households will benefit from such projected growth or the jobs that it generates. So, targeted programmes will continue to play an essential role in the medium term in reducing poverty. This One Pager offers an initial assessment of the effectiveness of two such programmes—a job-creation programme and a cash-transfer programme based on child grants.¹

Targeted cash transfers are popular nowadays among governments and donor agencies. Often, they are based on the number of school-age children in a household and conditional on school attendance and health check-ups. Using data from Kenya’s 1998/99 Labour Force Survey (LFS), we simulate such a transfer to all children aged 6 to 14 years in poor households. The cost is a mere four per cent of total household income. The result is a six percentage point fall in the incidence of poverty and an eight percentage point reduction in the depth of poverty.

What would be the impact of a job programme that is similarly financed? To answer this question, we simulate the effect of wages paid by such a programme to a group that includes both: 1) all unemployed workers from poor households and 2) all workers from such households whose labour earnings were lower than the level of wages paid by the programme. The wage level of such a programme is critical. We set the wage roughly equivalent to the poverty lines for rural and urban areas—specifically, the minimum wage of unskilled workers in rural agriculture and that of unskilled workers in all urban sectors other than Nairobi.

Footnote:

See Eduardo Zepeda (2007). ‘Addressing the Employment-Poverty Nexus in Kenya’, IPC Working Paper, forthcoming.