Friday, November 14, 2008

Minimum wages and SME

From Sensus Ekonomi 2006 (quoted from a seminar presentation):

The data supports the sentiments such as "SMEs are important to our economy as they create most of the employment" kind of thing. I agree. Now look at the average wages they paid to the workers. Here is the question: if we keep increasing the minimum wages, and enforce it, who are to win and who are to lose?


  1. These 2 posts might start to give one the impression as if MW is the only thing that should be.

    Why the need to leave it to a third party to set wages?

    To what extent should MW be allowed? Why think win-lose in the first place?

    How about voluntary transactions?

  2. Anon -- seriously, you do think that these posts lead to your (or anyone's) impression that MW is the only thing that should be?

  3. ap, don't be too upset for being misunderstood :-)

    Maybe you just need to be more blunt and less rhetorical here and wrote: there is a clear trade off between MW and helping SME, as well as between MW and unemployment.

    Or, you can't eat the cake and have it too

  4. ap & rizal, perhaps you guys could expand a bit and offer your take on priorities: since we can't have it both ways, should we keep the cake, or eat it?

  5. can we see it the other way?

    minimum wage can provide a filter such that only efficient SMEs survive (i.e. SMEs that are efficient enough so they can pay MW). in the end, we have productive and efficient SMEs; which I think is good.

    what's wrong with this thinking?

  6. Rizal -- I guess you're right. I've been too much in the 'ask-question-don't-provide-answers' teaching mode.

    Tirta -- my conclusion: 1) don't set MW too high, 2) use MW as safety net wage and not as a tool for collective bargaining, 3) promote bilateral bargaining for wage setting, 4) fix the collective bargaining institutions as a precondition for (3), by introducing code of conduct ans some other measures.

    Roby -- then it means we can't SMEs as a significant source of job creation.