Essay Example. Report on Unemployment in Kenya

This report is a response that follows an assignment from the management team to investigate the most appropriate country for investment in Africa, Asia, and Latin countries. After careful consideration, African countries are the most suitable for investment diversification because of their cost-effectiveness and government policies. Kenya is precisely one of the countries in Africa that are suitable for foreign investments according to recent statistics. Studies by Caporale & GilAlana (2018) indicate that the nation is ideal because of its cost-effectiveness and its government policies that favor foreign investments in the nation. Unemployment is high in Kenya. It is therefore one of the reasons why the government of Kenya welcomes investors in the country to help it in solving the economic problem by providing job opportunities to the unemployed youths. Unemployment occurs when willing workers are unable to secure jobs. This report will illustrate the relationship between unemployment and the Kenyan economy using statistical data.

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Research Method and Data Collection

The report is developed after a thorough engagement with literature materials with information on economic issues facing developing countries in Africa. The study focused on data from scholarly and peer-reviewed journals whose publication years are at most five years. The study used such recent articles to obtain the most recent economic information about the subject of study. The research surveyed Kenyan government websites to explore the relationship of unemployment with its economy as well as its policies.

Findings

High Unemployment Rates in Kenya

According to research findings, Kenya has among the highest unemployment rates in Africa and the world at large. Kenya is one of the countries whose average population is the younger generations. The state also comprised of skilled, semi-skilled and unskilled laborers. Caporale & GilAlana (2018) ranks Kenya among the countries with the highest rates of unemployment in the world. The ranking is also coherent with United Nations Development Program (UNDP) which classifies it as top among the Eastern African countries (Obonyo & Tibbs, 2017). Kenya has continued to record the high unemployment rates since its independence in 1963. There has not been a remarkable improvement in reducing unemployment since 1963 (Obonyo & Tibbs, 2017). Therefore, since then, the country has been welcoming manufacturers. According to the Kenya Bureau of National Statics (KEBS), close to eight million youths are unemployed. Two million among the unemployed are resilient and still looking for jobs while the other group has no longer hunting for employment because of despair and frustrations.

Corruption and the Kenya education system contribute largely to unemployment high rates in the countries. According to interviews, the youths lament of how they cannot secure a job without paying a massive amount of money or without being in connection with the seniors from the companies of interest. The Kenyan education system, according to studies equips the learners with the knowledge and not the skills and yet the employers seek for skilled individuals. Others are also unable to attend higher learning institutions because of the high tuition fees. The country experiences different types of unemployment. They include disguised, seasonal and structural unemployment, among others (Otoi 2016).

The Relationship between Unemployment and the Kenyan Economy

In studying the Kenyan economy, it is evident that unemployment is one of the factors that affect it. There is a close relationship between unemployment and inflation, money supply and the gross domestic product (GDP) in the country.

The Relationship between Unemployment and Inflation

Inflation is one of the features of many economies, and Kenya is not an exemption. It is the measure of the rate at which commodities prices are changing over time. There is a significant relationship between employment growth and inflation. An increase in inflation affects unemployment as the companies may choose to engage workers for a short-term basis because of the increased cost of production, which triggers cost-push inflation. However, inflation does not have a long-term connection with unemployment rates. Unemployment and inflation are the primary indicators of the Kenyan economy. Kenya has for the last ten years recorded increased inflation than most of the countries in the Eastern African regions according to UNDP’s information accessed by Okara, & Mutuku (2019). In the recession period between 2008-2010, Kenya recorded the highest inflation rate compared to most countries in the world according to the graph below.

Wage inflation increases unemployment as the numbers seeking employment exceed what the companies can sustain with the increased wages. Research indicates that raised minimum wages contribute to unemployment. As the government increases the minimum wage, the companies may be forced to retrench some workers and also to raise prices to meet the rising production costs arising from rising wages and salaries. The effect of the increased rates will be inflation on the economy. The Philips Curve suggests that there is an existence of an inverse relationship between inflation and unemployment (Okara, & Mutuku 2019). The theory suggests that an increase in labor demand will resultantly reduced unemployment. Inflation and unemployment have a significant association with the Kenyan economy because decreasing inflation and increasing employment is the cornerstone of the monetary policy. In other words, low inflation and high employment rates stabilize the Central Bank of Kenya's (CBK) fiscal policies.

The Relationship between Unemployment and Money Supply in Kenya

The Central Bank of Kenya (CBK) is the most vital bank in the Kenyan economy for regulating the supply of money to affect the country’s economic goals. According to research, the money supply increases with full employment and decreases with rising unemployment. Employment infers that the companies will be requiring the money in their banks to cater for their expenses which include labor costs (Okara, & Mutuku 2019). The central bank will, therefore, be to release more cash through commercial banks. An increase in employment infers in increasing production. The companies in Kenya consequently seek loans from the banks to fund for the increasing production costs. Borrowing from the banks will, therefore, lead to an increased money supply. Increasing production demand necessitates rising employment. When the production demand is higher than the existing labor, most companies will increase wages and labor to attract and retain workers. The increment consequently increases the supply of money among the workers (Okara, & Mutuku 2019).

While unemployment reduces the money supply in the economy, employment on the other increases the money supply. Employment increases the opportunity of the workers to acquire loans from the cooperative and commercial among other lending institutions. The workers’ credibility to access loans translates to an increased supply of liquidity money in the economy. Increased money supply results in increased purchasing power among Kenyan citizens. However, the increased money supply has adverse effects in the marketplace, which include increased product prices that result from high demand. Low amount of funding to the companies from the Central Bank affects the companies’ power to retain and seek new workers contributing to the existing high unemployment in the country. Unemployment has adverse effects on the economy and the supply of money in the country. Full employment is, therefore, a significant factor in the Kenya economy. However, Kenya is yet to attain the desirable employment levels to its population. Monetary supply is also limited and cannot adequately reduce unemployment in Kenya (Otoi 2016).

The Relationship between Unemployment and Gross Domestic Product

Unemployment in Kenya also has a relationship with its economy through its connection to the country’s GDP. The relationship between unemployment and GDP is significant in affecting the economy than other factors. Okun’s theory indicates that a country’s GDP decreases with an increase in unemployment. Increasing employment is vital for an increase in real GDP. Current opinions about the association between unemployment and gross domestic product assert that there is an increase in GDP by over 2% when the unemployment rate falls by 1% (Okara, & Mutuku 2019).

Unemployment as a macroeconomic factor has a significant impact on most individuals, groups and countries, including Kenya. Unemployment to individuals results in a low standard of living and reduced demand for power. The gross domestic product growth rate has been approximately 2.5% for the last five years. The exporting of agricultural products such as coffee, tea and maize among other products contribute significantly to the Kenyan GDP.

Reduced employment of laborers to work on the farms in the production of agricultural products will result in reduced GDP. Due to increasing unemployment, some individuals have shifted to the informal sectors (Jua Kali), which also contributes to the gross domestic product. The relationship between unemployment and the economy is expressed through the connection between unemployment and national output. Increased employment translates to increased production. Policymakers in Kenya, therefore, seek to employ measures that can increase employment to increase its country's gross domestic product.

Discussion

Unemployment is a significant economic indicator that many policymakers observe when making financial decisions. According to studies, Kenya emerges among the countries with the highest levels of unemployment in the world according to studies made by Caporale & GilAlana (2018). Caporale & Gil-Alana's (2018) reviews match with the United Nations Development Programs (UNDP) research which put Kenya among the Eastern African countries with the highest number of unemployed youths (Obonyo & Tibbs, 2017). The government of Kenya has, therefore, been trying to make policies that seek to decrease unemployment rates. One of the measures includes the creation of systems that favors foreign investments. The Coca-Cola Company is among the United States Company that is successfully operating in Kenya. The Kenyan government has also allowed various types of industries, such as manufacturers and services. International companies are significantly contributing to the Kenyan economy.

Studies on the Kenyan economy identify Kenya as an excellent example of the African countries that support foreign investments within its borders. Besides Coca-Cola, Barclays Bank is also an international bank that is thriving in Kenya and offering employment opportunities to graduates in the country. Heineken, Cisco System and Toyota are also among the leading global companies that are making significant inputs in the Kenyan economy. Chinese construction companies are also dominating in providing construction services in Kenya.