World Bank sounds alarm as Kenya’s labour market weakens, wages fall and informal jobs surge

Kenya’s labour market remains weak, underscoring the persistent unemployment crisis gripping the country, according to the World Bank.

In its latest November economic update, the lender notes that despite a rapidly growing working-age population, formal employment growth has stagnated over the past decade. It also reports that real wages have fallen sharply, dropping by 10.7 per cent between 2015 and 2024.

Official data shows that in 2024, Kenya created 782,300 new jobs, but an overwhelming 90 per cent were informal, up from 84 per cent in 2014.

The World Bank warns that this deepening shift toward informality presents a complex mix of challenges, including low productivity, inadequate social protection, and unstable incomes.

Rising business costs

The lender attributes sluggish formal job creation to rising business costs and structural bottlenecks that have forced companies to cut back on overheads.

As Kenya seeks a policy mix to unlock higher-quality jobs, it stresses that removing constraints facing the private sector must be central.

“Pro-competitive reforms should be a priority in Kenya’s quest to address the structural challenges that presently confront its economy and labour market,” the lender said.

“More robust competition lowers prices for consumers, thereby increasing demand for output and labour.”

Stronger competition

It adds that stronger competition also encourages firms to make productivity-enhancing investments, which lead to higher wages and expanded employment.

The World Bank says the potential impact of reforms is significant. Improving competition in key sectors—including electricity, transport, telecommunications, and professional services—could raise Kenya’s GDP growth by 1.35 percentage points and move the country closer to its goal of attaining upper middle-income status.

“If implemented fully, they could increase annual labour compensation growth up to 2.0 percentage points, equivalent to over 400,000 jobs per annum.”

However, realising these gains will require deliberate, economy-wide reforms.

One area flagged for overhaul is state-owned enterprises (SOEs). The lender argues that routine fiscal support to SOEs distorts competition and crowds out private investment.

Other Topics To Read

• Headlines
• National
• World Bank
• job creation
• jobs kenya
• Kenya’s labour market
• unemployment crisis
• World Bank sounds alarm as Kenya’s labour market weakens
• wages fall and informal jobs surge

It views the Government Owned Enterprises Act of 2025—which seeks to convert these entities into public limited companies—as a promising step, though it cautions that actual implementation will determine its success.

Foreign investment restrictions

The World Bank also urges a reassessment of foreign investment restrictions and persistent non-tariff barriers. Easing these barriers would improve access to technology, lower production costs, and strengthen Kenya’s integration into the African Continental Free Trade Area, boosting competitiveness and job creation in export-driven sectors.

Sector-specific reforms could also improve productivity and job quality.

In agriculture, the Bank recommends improving the fertiliser subsidy programme, which is currently dominated by a few distributors, to lower costs for farmers and enhance efficiency.

In energy, it highlights the need for transparent procurement of power purchase agreements and the rollout of the Renewable Energy Auction Policy to reduce the high electricity costs that have long burdened businesses.

The telecommunications sector—central to Kenya’s digital economy—also requires renewed focus. The World Bank points to persistent gaps in data costs and digital adoption among firms.

It says updating infrastructure-sharing rules, strengthening regulation of dominant players, and modernising digital market frameworks will be essential to lowering consumer costs and enabling technology-driven job creation in the years ahead.