Effect of Per Capita Income on Youth Unemployment in Kenya

Abstract

Purpose: The objective was to determine the effect of per capita income on youth unemployment in Kenya. Methodology: The study was anchored on Okun’s law, which predicts a 1% drop in employment from a 2% drop in GDP. The study used the World Bank Database’s quantitative time series data from 1991–2021. The choice of the ARDL was based on the ability of the model to give long-run and short-run analyses of stationary and non-stationary variables. Pre-estimation procedures and diagnostics tests were used to determine the stability of the model. Findings: Findings revealed a significant negative relationship between per capita income (-0.3666, p = 0.013) and youth unemployment in the long-run. The speed of adjustment (-0.89999, p = 0.0001) from the short-run to the long-run is evident. Unique Contribution to Theory, Practice and Policy: This study may help academicians develop their knowledge of youth unemployment. It may increase understanding of per capita income as an indicator of growth and its application in Okun’s law. The Salaries and Remuneration Commission (SRC) may benefit from this study by creating better packages of salaries, allowances, and mortgages that may attract and improve the standard of living of Kenyan youth. The Public Service Board (PSB) may establish youth-friendly offices to motivate youth to stay in the labour force. Moreover, this study may guide the State Department for Youth Affairs to promote youth employment and increase labour productivity in Kenya. The State Department of Gender may use the study in gender mainstreaming and gender policy management. Policymakers will assess the effectiveness of the curriculum in preparing youth for the job market. An increase in labour productivity will result from increasing youth employment.