Human Capital Development, Labor Productivity and Sectoral Labor Productivity Differential in Kenya
DOI:
https://doi.org/10.53819/81018102t3182Abstract
Kenya has recorded notable progress in human capital development over recent decades, as reflected in steady improvements in education and health outcomes. However, this progress has not translated into equivalent gains in labor productivity, which has persistently remained between 1.2 and 1.5 percent, well below the 3 percent target set under Vision 2030. Substantial productivity differentials also persist across key economic sectors, with the manufacturing sector exhibiting considerably higher labor productivity than the agricultural sector despite the latter employing the majority of the workforce. This study examined the effects of human capital development on overall labor productivity and sectoral labor productivity differentials in Kenya for the period 1990 to 2023. The study was grounded in the Solow growth model, augmented by the Human Development Index (HDI) as a proxy for human capital. Secondary time series data were sourced from the Kenya National Bureau of Statistics, the International Labour Organization, the World Bank, and World Development Indicators. The Autoregressive Distributed Lag (ARDL) bounds testing approach was applied to estimate both short-run dynamics and long-run equilibrium relationships. Findings revealed that HDI exerted a positive and statistically significant effect on overall labor productivity in both the short run and the long run. However, HDI did not significantly reduce the sectoral labor productivity differential between agriculture and manufacturing, suggesting that Kenya's human capital investments have not been sufficiently targeted toward the lower-productivity agricultural sector. The study recommends sector-specific human capital interventions, particularly in vocational training, agricultural extension services, and health infrastructure, to enhance labor productivity and reduce structural productivity gaps across sectors.
Keywords: Human Capital, Development, Labor Productivity, Sectoral Labor, Productivity Differential
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