This article analyses the economic factors affecting wage employment in Kenya, where open unemployment fell from 15 per cent in 1998/1999 to 13 per cent in 2005/2006. As of 2005/2006, wage employment constituted 13 per cent of the total working population, which implies that doubling wage employment will absorb idle labour and help solve unemployment in Kenya. The results of this study indicate that increasing economic output alone will not guarantee higher wage employment. The key to higher wage employment in Kenya would be to improve broader levels of socio-economic development with a view to increasing the value of Kenya’s exports, and keeping domestic infl ation low.

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Keywords

demand for labour, natural rate of unemployment, terms of trade