While it is clear that higher wages benefit workers, there is a business impact behind doing that.

Recently, the issue of raising lower wages workers’ salaries was brought up in the Singapore parliament.

There were two schools of contention for and against doing this. With both sets of arguments being valid within their premise, it can be a difficult issue to resolve. Singapore is in a situation where it is surrounded by other neighbouring cities where the costs of business are significantly lower.

Since lowering business cost was part of the the open-door foreign talent policy implementation, it has however led to a large replacement of Singaporeans in the workforce.

In this week’s article we are highlighting the ‘Pros’ and ‘Cons’ of raising wage and its impact that can be seen from other countries who have done so in the past.

Pros

The primary argument of raising the wage is that it improves the overall standard of living for wage workers and in turn, it will have a positive impact on the businesses.

With improved employee morale resulting from higher wages, business owners offers a pragmatic monetary encouragement to spur workers to put in more effort into their work.

Increasing morale can also lead to immediate benefits such as higher employee retention and reduced hiring and training costs.

One intangible benefit that business owners may overlook as a broader picture, is that with increase wages, there will be continuous spending into a boost economic growth. As the workers becomes higher spending consumer which inturn flows to the retailers who are part of the supply chain of the businesses the workers are from.

Cons

A possible disadvantages of increasing the wage is the probable consequence increased cost that results in an increase in prices which creates an inflation.

This school of thought promotes that raising the wage will result in substantial increase of operating expenses for companies, that would then increase the prices of their services & products to maintain the margins.

With an inflated cost of living, it essentially negates any benefits gained by the workers from a higher salary.

Another potential problem resulting from an increased wage system comes in the form of job losses. Some economists and business leaders points out that labor is a major component in a company’s operating expense. When faced with increased cost the business may be forced to reduce employments to maintain profitability.

One potential impact that not easily noticed is the possibility of an increased labor market competition for jobs when number of jobs are reduced. In this scenario there might be a large number of overqualified workers taking on lower positions that would usually be filled by younger or lesser experienced workers due to the lack of job options in the market.

This in turn could hinder younger entrants to the job market from obtaining work to move their careers forward.

Bottom Line

Raising wage is a ideal that most of the workforce would like to happen. Ideadlly it serves to increase the quality of living, gets more people out of the poverty line decrease the income inequality. In actuality, however, it may not always result in that objective. To implement such a move the policy makers have to consider and balance out the economic impact on the short-mid-long term to decide a progressive way of doing this.

ENABLE CONSULTING

Established in 2013, enable Consulting is a specialised hr consulting firm.

We believe that having a strong and robust HR function is a key driver for continuous growth in any successful business. It is on this belief that we have built many successful partnerships with clients across different industries.

We are a people business and it is our talent pool that defines us. Each and every one of our consultants is highly professional with many years of experience in HR management consulting and services.

Our Consultants are PMC certified to further be able to help local SMEs improve and optimise their HR operational efficiency through Singapore Grants. enable is about offering affordable, high value adding solutions to improve business performance; while at the same time nurturing and inspiring a fair and respectful working environment. But above all, enable is about enabling you.

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