The impact of COVID-19 incidence, vulnerability and business closure on wages in Kenya

Abstract

This study analyses the impact of COVID-19 incidence, vulnerability and business closures due to COVID-19 on wages. Further, it assesses the effectiveness of the government tax relief measures implemented to cushion workers from the negative impact of the pandemic. Analysis based on a high-frequency panel data collected in 2020 and 2021 is carried out using a Control Function Approach. The results show that COVID-19 incidence significantly reduces wages, while COVID-19 vulnerability and business closure have an insignificant effect on wages. Further, the government tax relief measures put in place to cushion workers from the negative impact of COVID-19 helped alleviate the negative effect of COVID-19 on wages. Urban dwellers benefitted more from government tax relief measures and were worse off in the period following the end of the government tax relief measures. This study provides evidence to validate tax relief measures undertaken by the government to cushion workers’ wages from the adverse effects of the COVID-19 pandemic and accounts for endogeneity and heterogeneity.