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Minimum Wage and SMEs

  1. How will the Government’s implementation of a minimum wage act augur for the businesses of SMEs?

    SMEs may initially face an overall increase in the cost of doing business due to higher wage costs and competition for manpower from the larger firms. The increase in pay could be mitigated when it is accompanied by higher labour productivity, multi – tasking and multi – skilling as well as greater stability in the workforce. The transformation however could take time.

    The impact on SMEs could also be mitigated by ensuring that geographical, rural – urban and sectoral differences are considered in implementing the minimum wage.

  2. What are negative impacts of having a minimum wage act on SMEs?

    The main negative impact on SMEs and also for the larger firms would be the wage increase, which would also lead to a wage spiral when employers would also have to push up wages at the higher levels. Any sudden and steep increase in wage costs would adversely affect the overall costs and competitiveness of the businesses. 

    However, FMM’s Salary and Benefits survey findings have shown that small companies had paid higher increment to non-executive staff in 2010 and 2011 compared to medium and large companies, indicating that these companies are raising wages on their own initiative.

    Nevertheless, companies would require time to adjust to the minimum wage level, especially for firms which have a wide gap to cover from their current level of wages. FMM has therefore recommended to the Government that employers should be given a two-year grace period to adjust and reach the initial minimum wage level.

  3. Are there any positive effects from having a minimum wage act for SMEs?  Some argue that a minimum wage policy would actually compel SMEs to move up the value chain and become less labour-intensive.

    The Minimum Wage Act and the corresponding higher wages could lead to a reduction in labour turnover rate among local workers and a reduction in the dependency on foreign labour.

    Higher labour costs would also drive industries to embark on greater automation and mechanisation to be less labour intensive. The greater use of technology could also lead to SMEs moving up the value chain.

    SMEs could also counter the adverse cost effects of the sudden and steep increase in wage costs by increasing training to further improve skills and labour productivity, increase efficiency, reduce wastage and by adopting product market strategies to increase their competitiveness and revenue.

The above comments were submitted to The Star newspaper on September 7, 2011 and appeared in the newspaper on September 10, 2011 under the Business Times section.

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