High wages a threat to SME sustainability?

Labour Q&A with Terry Bell

Fin24 user M Jordaan is weighing up the sustainability of a small business against the demand for high wages. She writes:

For small businesses, which simply cannot afford the huge wages, coupled with all the non-working days - public holidays, sick- and family responsibility leave - do you suggest they rather close down?

I am asking is it better to earn a low wage or no wage at all?

For employers with five or fewer employees, having one person not at work, is at a minimum a 20% loss in productive hours. No business can be sustainable with 80% productivity for 50‎% of the time.

Good day to you, M Jordaan.  I don't think anyone has suggested that businesses close down if they can pay reasonable wages and provide humane conditions. The problem arises because businesses try to undercut one another by reducing wages and providing poorer conditions. This is what the unions term the race to the bottom. 

So a benchmark of wages and conditions must be negotiated. But if, for example, a particular entity, in one or other area, can show that it provides a necessary service, but cannot meet the benchmark, especially for wages, such a business can, with the agreement of the workers, be granted an exemption.

The simple fact of the matter is that any supply of goods and services is determined by demand - and a level playing field for employers (paying equivalent wages etc) also guarantees relative fairness of competition. So lower wages do not create jobs;  there is a limit to the number of jobs required in any sector to meet demand.

Perhaps, depending on the sector you operate in, you should direct questions to government regarding import parity pricing of materials and the lack of protection against what is in effect the dumping of subsidised imports.

Hope this is of help.

- Fin24

* Add your voice or just drop Terry a labour question. Follow Terry on twitter @telbelsa.

Disclaimer: All articles and letters published on Fin24 have been independently written by members of the Fin24 community. The views of users published on Fin24 are therefore their own and do not necessarily represent those of Fin24.