SMEs will be hit hard under plan, SBF warns

WAGE SHOCK THERAPY

Concerns over how pay increments are achieved

By Aaron Low, The Straits Times, 27 Apr 2012

THE debate over a prominent economist's plan to close the wage gap continues to rage, after a major group representing employers criticised the plan by saying it will hit small and medium-sized enterprises (SMEs) hard.

The Singapore Business Federation (SBF) warned that the proposal to lift wages of the lowest-paid by more than 50 per cent over three years would have 'untoward consequences'.

It said wage increments must be accompanied by productivity gains to make such a move sustainable.

The SBF said that businesses were not against wage increases for lower wage workers, but added that how such rises are achieved is as important.

Professor Lim Chong Yah sparked a huge national debate earlier this month after he suggested that Singapore drastically raise wages at the bottom while freezing wage increases of the highest earners.

He said that the move will help close the income gap, which was approaching dangerous levels, and tackle the problem of low productivity among firms.

Government officials and the labour union leadership have come out strongly against his plan, saying it was risky and that there are better ways to reduce the gap.

Yesterday, the SBF, which represents about 12,000 SMEs, noted that SMEs employ 70 per cent of Singapore's workforce, and that Prof Lim's 'wage shock' proposal would hit them hard.

Mr Lawrence Leow, chairman of the SBF's SME committee, said that an 'unmitigated wage increase without productivity improvements will stifle growth'.

He said that pay raises must be justified on productivity gains, or else there is a real chance many firms will simply shut down.

'Firms can maybe set a five- year target to raise productivity and wages and they can tilt any wage gains towards the lower income,' he said.

'But they will need time and a clear plan, as opposed to simply giving higher wages without a clear business reason.'

The president of the Association of Small and Medium Enterprises, Mr Chan Chong Beng, added that Prof Lim's plan will hurt the bottom line and cash flows of many SMEs, which are already being squeezed by escalating business and labour costs.

Mr Chan said he thinks that firms can endure a sharp 20 per cent increase in wages for one year, but they will need to justify the increase over the next two to three years through higher sales or profits.

'I think bosses already know they just can't pay $800 for workers and that the benchmark is closer to $1,000 to $1,200 now,' he said. 'But they will need to find ways to make workers do more on higher salaries, or raise revenues to pay for the higher wages.'

Still, regardless of what firms think of the plan, SBF chief Ho Meng Kit said that the best part of it was simply that it had set people thinking hard about the problem.

He said the SBF supports the current approach of firms working with the unions and the Government to raise productivity. 'This requires more effort but the result would be more sustainable.'