An Exploration On The Effect of A National Minimum Wage in The SME Sector Post The Covid-19 Pandemic in Mauritius
An Exploration On The Effect of A National Minimum Wage in The SME Sector Post The Covid-19 Pandemic in Mauritius
I. INTRODUCTION
Minimum wage represents the lowest levels of pay, established through a Minimum Wage Fixing
System, to be paid to workers by virtue of a contract of employment (IOE, 2014). The governments implement
minimum wages as an instrument of political macroeconomics or as social tools. However, the opponents of
minimum wages may argue that this instrument can have detrimental effects on employment, growth and
incentives to work and can negatively impact opportunities for lower-skilled workers. While supporters of the
minimum wage conversely argue that, it is in fact an effective instrument to protect the lower paid staff and
combat poverty. Minimum wages have three aspects, which are as follows;
(a) The remuneration for work performed by the worker
(b) The workers’ basic income and source of purchasing power
(c) A production cost
Minimum wages can be set by statute, collective bargaining agreements, and decisions of national
boards or arbitration awards. They can be differentiated by region, sector or according to the specific criteria for
the country (IOE, 2014).
According to Zhang (2016), minimum wage refers to the lowest remuneration that employers pay to
employees which was long implemented across the world as a poverty mitigating tool. As the popularity of
minimum wage system is growing, different countries are adopting a minimum wage strategy that is appropriate
in their context of wage system.
It can be estimated today that more than 90% of all countries have some kind of MW legislation such
as UK has a National Minimum Wage (NMW), US has a Federal Minimum Wage (FMW), France has a Salaire
Minimum de Croissance (SMDC) and others (Wageindicator.org.2015). Historically, these laws applied only to
DOI: 10.9790/0837-2703090108 www.iosrjournals.org 1 |Page
Title: An Exploration On The Effect Of A National Minimum Wage In The Sme Sector ..
children and women: it was only after the Great Depression that many mechanized economies extended them to
the universal workforce (Francis Journot, 2013). Some countries have implemented a MW law in their economy
after having ratified the International Labour Organisation (ILO), which some others have established MW
fixing procedure (ILO, 2015). Even though Mauritius has attempted several strategies and regulations to bring a
decent minimum wage system, it is in 2018 that a NMW was reinforced to avoid exploitation of low skilled
labour.
PROBLEM STATEMENT
The primary purpose of the National Minimum Wage is to ensure that the basic needs of low wage
workers are adequately met to enable them lead a better quality of life. However, it may question the survival of
the organizations from the various sectors especially the small and medium enterprises in Mauritius as they may
not afford to plan a budget with a higher labour cost. On one hand the Government is encouraging investment in
small and medium enterprises to create a second Economic Miracle while on the other hand, a National
Minimum Wage has been implemented which may not be affordable to many small trade business. Of course,
we cannot ignore the impact that the Covid-19 pandemic had on the overall economy and more precisely on the
SMEs for the purpose of this study. Some employers might find it easier to reduce the non-wage benefits offered
to the workers to cater to the additional financial burden in order to sustain their profit margin. Introduction of a
NMW in Mauritius can cause a decline in the employment rate especially in the SME Sector as well as an
increase depending on the profit margin and strategies adopted by the firms in question. However, after the
pandemic, the SMEs are struggling for their survival in the market and whether or not they will be able to pay
the existing NMW. There is a high risk of labour being replaced by capital machinery and equipment. Along
with unemployment, price hiking is another crucial issue to encounter after a raise in NMW. Therefore, this
study will be conducted to determine how various sectors in Mauritius will cope with the NMW.
PURPOSE
The purpose of this study is to investigate the impact of the National Minimum Wage (NMW) in the
small and medium enterprises (SMEs) in Mauritius post the Covid-19 pandemic. The result will show whether
NMW had a substantial influence on the survival of SMEs and if so, in what ways. Additionally to NMW, the
study findings will also reveal how the Covid-19 pandemic has affected the SMEs and determining the factors
which were mostly impacted and what are the new strategies and measures that SMEs would adopt to remain
competitive in the market.
RESEARCH QUESTIONS
The following are the research questions that this study is trying to address;
1. How has the NMW affected the profitability of the small and medium firms?
2. What are the measures taken to bear the additional costs after the implementation of NMW in the small
and medium firms?
3. Is a National Minimum Wage being sustainable in the long run post Covid-19?
4. What are the aspects of job creation or job loss after Covid-19 pandemic?
5. Has productivity of workers improved with the introduction of a NMW?
6. What could be the ways forward in the case of Mauritius?
7. What are the strategies adopted for survival of SMEs after the pandemic?
HYPOTHESES
Below are few hypotheses that will be analysed during this study;
Hypothesis 1
Ho NMW has not led to decline in employment among SMEs
H1 NMW has led to decline in employment among SMEs
Hypothesis 2
Ho NMW has not led to substitution by machines in SMEs
H1 NMW has led to substitution of labour by machines in SMEs
Hypothesis 3
Ho NMW has led to increase in prices of products/services of SMEs
H1 NMW has led to increase in prices of salaries of products services of SMEs
Hypothesis 4
Ho NMW has not led SMEs to increase training to increase productivity
H1 NMW has led SMEs to increase training to increase labour productivity
Hypothesis 5
Ho NMW has not led to erosion of benefits of employees
H1 NMW has led to erosion of benefits of employees
Hypothesis 6
Ho NMW has not led to less recruitment by SMEs
H1 NMW has led to less recruitment by SMEs
Hypothesis 7
Ho SMEs are able to pay the NMW to staff after the Covid-19 pandemic
H1 SMEs are not able to pay the NMW to staff after the Covid-19 pandemic
Hypothesis 8
Ho Business Profits has been affected after Covid-19 pandemic
H1 Business Profits has not been affected after Covid-19 pandemic
Hypothesis 9
Ho Price of products or services has increased after Covid-19 pandemic
H1 Price of products or services has not increased after Covid-19 pandemic
II. BACKGROUND
Introduction
On 1st January 2018, a NMW was introduced as a medium to avoid exploitation of low-skilled labour
in Mauritius. Over the years, the NMW has been reviewed and raised considering the actual cost of living.
However, in the last 2 years, the world has been hit by the Covid-19 pandemic that has not only changed our
living habits but also the health and the economy of across the world has been very affected. Therefore, in this
part of the article, a review of the existing literature relevant to this study will be explored.
Empirical Investigation
There are various researches that have been conducted over the years about the effect of an increase of
minimum wage on several factors such employment of workers, price of products and service, productivity of
workers and the business profits of the SMEs. Historically, there were two distinct perspectives in the body of
research about the effect of an increased minimum wage. Firstly, those who support minimum wage increase as
a means to increase income and help alleviate poverty and secondly those who are against minimum wage
increase due to the unintended consequences of decreased employment for unskilled workers, inflationary
pressure, increased automation and capital investment. However, very little research existed about how small
and medium firms were affected by and adjusted to minimum wage increases. The SME Sector is very
important for the economy of a country and it has been revealed that successful small businesses help the
economic growth by job creations which also increase the household income and the spending. Also, increasing
minimum wage proved to increase the purchasing power of many low-skilled workers. This results in a ripple
effect of increased economic activity throughout the entire economy that triggers economic growth (McEachern,
2017). Everett (2014) examined how small and large firms respond by increasing prices, reducing hours, laying
off employees, reducing other costs, and/or reducing profit. Arrowsmith (2003) examined the effect of a NMW
on small firms and discussed the process of adjustment and how small firms often absorbed the additional cost,
changed the work organization, or changed the market positioning. Aaronson and Phelan (2016) studied wage
shocks and the technological substitution of low-wage jobs. As the price of labour increases, firms often
substitute capital investment and automation for human labour. They explained that in industries and in job
markets with routine and repetitive processes, a minimum wage increase likely increases the technological
substitution for that labor and thus decreases low-skill, low-wage jobs. Hirsch, Kaufman, and Zelenska’s (2015)
study found that the increased costs associated with the minimum wage were passed along by increasing the
final product price, as well as increasing employee performance standards and work effort, increasing marketing
to stimulate revenue growth, and wage compression. MaCurdy (2015) argued that to compensate for an increase
in the minimum wage, employers can reduce employment, raise final product prices, or reduce employer profits.
Neumark (2015) discussed that over the years, some research indicated that a higher minimum wage reduced the
employment opportunities for teenage and low-skilled workers, while other studies showed little to no adverse
effects of a small to moderate minimum wage increase. The study also includes the effect of the Covid-19
pandemic effect on the SMEs and the strategies to be adopted to be able to survive with the “new normal”.
III. METHODOLOGY
According to Polit and Beck (2004) methodology refers to ways of obtaining, systematizing and
analysing data while Creswell (2003) portrays methodology as a coherent group of methods that harmonize one
another and that have the capability to fit to deliver data and findings that will reflect the research question and
suits the researcher’s purpose. Bowling (2002) explains that methodology is the complete structure of the
research study; the size and sample methods, the practices and techniques utilized to collect data and the process
to analyse data. Blumberg, Cooper and Schindler (2008) express that research methodology is truly essential for
researches due to its vast contribution regarding to knowledge and skills provided in order to solve the
problems, and achieve the goals or objectives planned for the investigation. For researchers, it is quite important
to have a clear methodological framework in order to ask questions and also to answer them. Hence, this section
highlights the methodology chosen the investigation, as well as its validity, reliability and the ethic conditions.
The main purpose of this study is to gain insights on the impact that the NMW has on SMEs
particularly after the pandemic due to Covid-19. Therefore, in this section there are a variety of aspects being
covered to get all this information. These aspects are going to be the methodology of the design and the
selection of the sample, the method of collecting the data and the way it will be analyzed, the validity and
reliability of these chosen methods and at last the ethical issues considered to successfully fulfill this research’s
purpose.
In order to address this problem, a mixed method research is being conducted to deeply explore how
the SME adjusted their business strategies with the implementation of NMW in Mauritius post the Covid-19
pandemic.
Research Design
According to Adrew Kirumbi (2018), a research design is a set of methods and procedures used in
collecting and analysing measures of the variables specified in the problem statement. Another definition of
research design by Myres (2008) is a procedure used to gather and analyse data, interpret results and
disseminate the findings. The research methods that can be used for investigation being carried out can come in
three different ways: mono method, multi-methods and mixed methods. A mixed methods selection is the one
considered appropriate for the current research as data will be collected via a focus group and interview research
method and a survey using questionnaire.
Domegan and Fleming (1999) point out that the research method or design of any investigation is as
important as the investigation’s problem definition, and it can only be chosen after the objectives have been
selected. These two authors define research design as the general action plan in a marketing research study, and
it can be classified into three types of research: Exploratory, Descriptive and Causal. According to Burns and
Bush (2014), the selection of any of these three types of research will depend on the objectives set by the
researcher. Causal research is the one selected for this investigation, and they are described as the deeply
understanding of certain phenomenon regarding to a conditional statement, engaged to a high use of
mathematical and statistical tools. The causal research aims to establish a cause and effect relationship among
the various criteria and variables being investigated during the study.
Basically, there are two types of data which are primary data and secondary data. Primary data are
obtained from first hand sources such as direct observation, interviews, survey and questionnaire while
secondary data are retrieved from sources such as printed and published materials. For this investigation, the
written materials like academic journals, publications, newspapers and organizations websites were used as
secondary data to be able to obtain additional information for the study and the focus group discussion and a
questionnaire is designed to collect the primary data required for the analysis.
Previous research into sample sizes in both qualitative and quantitative researches has suggested gaining
participants and conduct the survey until data analysis and transcription reaches saturation. Saturation has been
found to come at different sample sizes depending on the research aims and objectives.
selected along with 20 semi-structured interviews will be conducted in order to gain maximum information to be
able to derive a questionnaire for mass data collection.
Data Analysis
A mixed method approach will be adopted for the data analysis. First of all, a thematic data analysis
will used to analyse the data collected via the focus group discussion and the semi-structured interview.
Thematic analysis is a form of qualitative research that aims to gather an understanding of a certain phenomenon
from taking common themes from a larger body of data. The NVIVO 12 Software will be used for the data
analysis. The data collected from focus group discussion and the interviews will be inserted in the NVIVO 12
Software, then identifying the interesting features of the data and established codes which will be further
collated into potential themes.
In this research, a questionnaire is a prepared set of questions submitted to the owners or managers of
SMEs as respondents with a view to obtaining information about the impact that NMW has on the survival of
SMEs particularly after the Covid-19 pandemic in Mauritius. The questionnaire should be carefully designed to
boost the reliability and validity of the data.
The choice of the subject being studied, the aim of the research, the size of the research sample, the
method of data collection and the analysis of data were all taken into consideration when preparing the
questionnaire for the research. It is thus necessary to emphasize upon the questionnaire content, question format,
question order, type of questions, formulation of questions and validity and reliability of questions.
One of the important objectives considered while designing the questionnaire for the research was to
present the questions as simple and straightforward as possible. The questionnaire is formulated in such a way
that it eliminated ambiguity, bias, technical language and prejudice.
Reliability
Reliability related to the consistency with which research procedures deliver their results (Seale, 2004).
Reliability concerns the extent to which a measurement of a phenomenon provides stable and consist result
(Carmines and Zeller, 1979). It is also concerned with repeatability. For example, a scale or test is said to be
reliable if repeat measurement made by it under constant conditions will give the same result (Moser and
Kalton, 1989). Testing for reliability is important as it refers to the consistency across the parts of a measuring
instrument (Huck, 2007). A scale is said to have high internal consistency reliability if the items of a scale “hang
together” and measure the same construct (Huck, 2007, Robinson, 2009). The most commonly used internal
consistency measure is the Cronbach Alpha coefficient. It is viewed as the most appropriate measure of
reliability when making use of Likert scales (Whitley, 2002, Robinson, 2009). Although reliability is important
for study, it is not sufficient unless combined with validity. In other words, for a test to be reliable, it also needs
to be valid (Wilson, 2010). Concerning this study, the same questions were asked to all respondents and the
questionnaire can be used elsewhere and hence the study is repeatable.
Ethical Issues
According to Bailey (1994), to be ethical is to conform to accepted professional practices. It is
generally agreed that it is unethical for researchers to harm anyone in the course of research, especially, if it is
without the person's knowledge and permission. This includes deceiving a respondent about the true purpose of
a study, asking the respondent questions that cause him or her extreme embarrassment, causing emotional
turmoil by reminding him or her of an unpleasant experience, causing guilt, or invading his or her privacy.
Respondents may also be injured by being studied without their knowledge, or by violation of a promise of
confidentiality.
Researchers can also act unethically when analyzing data e.g. by revealing only part of the facts,
presenting facts out of context, falsifying findings, or offering misleading presentation. Bless and Higson-Smith
(1997), therefore, maintains that researchers should accept responsibility for protecting their participants.
This research will be conducted with these ethical issues in mind and respondents will be assured of
anonymity and confidentiality of information elicited from them. They will also be assured that information
about this research would be kept confidential.
IV. CONCLUSION
The study contributes to shed light on the factors that are mostly affected in order to understand the
impact of NMW along with the pandemic effect. The study will be carried out with the objective to provide
useful insights on how business profits have been affected, the capacity of SMES to offer a NMW to staff post
the pandemic, the factors such as employment of staff and prices of products, profitability and survival of the
business, productivity of workers, the replacement of staff with machinery where possible and the strategies
adopted survive in the market. Furthermore, outcomes of this study will suggest whether the implementation of
NMW in Mauritius is still sustainable with the upcoming new strategies and demand generating profits.
However, with the Covid-19 pandemic effect, many companies are facing the challenge to offer a minimum
wage. This study will contribute towards creating more opportunities and new strategies for the SMEs for
effective application of theory into practice.
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Trisheeta Sewdin, et. al. “Title: An Exploration on the Effect of A National Minimum Wage In
The SME Sector Post The Covid-19 Pandemic In Mauritius.” IOSR Journal of Humanities and
Social Science (IOSR-JHSS), 27(03), 2022, pp. 01-08.