Wage Disparity in MSEs

A PAPER SUBMITTED TO
RAVENSHAW UNIVERSITY
FOR THE AWARD OF THE DEGREE OF

MASTER IN COMMERCE
By:
Md. Aamir Anis
Roll: 19MCO-067
Email-id: aamiranis96@gmail.com

UNDER THE SUPERVISION OF

DR. CH. SUDIPTA KISHORE NANDA

ASSOCIATE PROFESSOR
DEPARTMENT OF COMMERCE & MANAGEMENT

RAVENSHAW UNIVERSITY
CUTTACK, ODISHA, INDIA-753003
2019-2021
“Small & Medium Enterprises (SME) are contributing remarkably towards economic and
social development of many countries around the world. The world has witnessed the growing
performance of SMEs in gross domestic product, employment generation, export, investment
resource utilization etc. Hence it is highly essential to boost up SME sector. But, simultaneously
being very volatile in nature Small & Medium enterprises take high amount of Risk. So, it is
quite essential for them to address the uncertainty by having reliable and loyal work forced
which can should them in good and bad periods. Not only should this in the 21st century where
business expand beyond domestic bounders SMEs endeavour to gain competitive advantage by
addressing the issues HR and their potential. This paper focuses on retention issues of HRM
in SME and the highlight how erasing of wage disparity can meet the challenges of human
resources management. Further the implications of this study will give the scope for SMEs,
Policy makers as well as for academic research in finding the impact better HRM practices on
the firm.

Keywords: Recruitment strategies, MSMEs, MSMEs in Odisha, HRM issues, minimum wages
 Backdrop Of The Study:

Small and Medium Scale Enterprise has occupied a place of strategic importance in most of
economy in the world due to their contribution made to national income, export, innovation
and development activities their contribution towards social and economic development
activities such as labour absorption, income distribution, rural development, poverty
eradication, regional balance and promotion of entrepreneurship. In fact, they play an
important role in the process of the country's industrial development. In developing countries,
even though such industries may not always be supported on grounds of economic efficiency
small labour intensive industries have been favoured basically to create employment
opportunities in an economy with abundant unskilled labour available.

In developing countries cottage and small-scale industries are especially important in context
of employment opportunities, equitable distribution of national income, balanced regional
growth and development of rural and semi urban areas, Rahman (2006;13). They provide
immediate large-scale employment, offer a method of ensuring a more equitable distribution
of the national income and facilitate effective mobilization of resources of capital and skill
which might otherwise remain unutilized. Small-scale industries play a very vital role even in
industrialized and advanced countries like the U.S.A., the U.K., Canada, and West Germany
and more, particularly in Japan, Baruha (2000;2). Especially in a developing country like
India, this sector is considered to be an engine of growth, due to their contribution to income
generation, employment, GDP and export earnings.

The Indian economy is now the second fastest growing economy of the world. As per the
Ministry of Finance, the GDP of India stood at 8.8% in the first quarter of 2010-11 (the overall
growth of GDP in 2009-10 was 7.2%); overall growth in the Index of Industrial Production
(IIP) was recorded at 13.8% during July 2010 as opposed to 7.2% in July 2009.
 Objectives Of The Study:

• To examine the minimum wage rate in Odisha and compare it to the actual wage rates
of employees in local SMEs.
• To provide recommendations to make retention better and reduce employee turnover.
 Scope Of The Study:
The scope extends to the micro businesses of Cuttack, especially of Jagatpur and Manguli
area. The respondents are between the age of 22 and 45, most with family of wife, kids and
parents. The wage reports are as per Odisha government’s notification on October 2019.
 Literature Review:

Walker (1992) defines strategic HRM as “the means of aligning the management of human
resources strategy so that the latter supports the accomplishment of the former and, indeed,
help to define it. Strategic HRM is also about horizontal integration, which aims to ensure that
the different elements of the HR strategy fit together and are mutually supportive. Brewster
and Larson (1992) define SHRM “as the extent to which HRM is considered during the
formulation and implementation of corporate/ business strategies”. Strategic HRM has also
been defined as “the pattern of planned human resource deployments and activities intended to
enable an organization to achieve its goals”.

Wright and McMahan, (1999) defined that the ultimate goal of strategic HRM is to contribute
to organizational performance (i.e., the achievement of the organisation’s goals, however that
performance is defined. HR deployment as captured in the above definition reflect the central
assumptions behind the(positive) conceptualization of what HRM is and does; namely, that it
responds accurately and effectively to the organizations environment and complements other
organizational systems and contingencies.

Budwah (2000) defines strategic HRM as a concept that views human resource as assets for
investment, and the management of human resources as strategic rather than reactive,
prescriptive and administrative. Strategic HRM involves designing and implementing a set of
proactive HR policies/practices that ensures that an organization’s human capital contributes
to the achievements of its corporate objectives.

David, Chin and Victor, (2002). Strategic HRM is essentially an integrated process that aims
to achieve “strategic fit”. A strategic HRM approach produces HR strategies that are integrated
vertically with the business strategy and are ideally an integral part of that strategy, contributing
to the business planning process as it happens. Strategic HRM, therefore, focuses on several
issues including the fit between human resource management practices and organizational
strategic goals, the integration of human resources management in the organizational strategic
management, the involvement of human resource function in senior management teams, the
development of human practices to line managers and taking of strategic approach to employee
selection, compensation, performance appraisal and the value that is added to the
organizational performance by HRM.

Green et al., (2006) reported that organizations that vertically aligned and horizontally
integrated HR function and practices performed better and produced more committed and
satisfied HR function employees who exhibited improved individual and organizational
performance.

Tessember and Soeters (2006) examined how, when and to what extend HR practices affects
performance in Eritrea, Africa’s youngest and poorest country. They reported that successful
implementation of HR practices could enhance individual and civil service organization of
Eritrea, but the economic and political environment within which HR practices operate are not
conducive. Their study tried to shed some light in the HRM performance debate within the
context of a developing country. In another study,

Adeyeye (2009) investigated the relationship between human capital development practices
and some dimensions of organizational effectiveness in the Nigerian banking industries. Data
were generated by means of two sets of questions administered to some ten (10) selected banks
in Lagos, Nigeria. He found a moderate correlation between human capital development and
organizational effectiveness.

Adeyeye (2009b) examined the relationship between size of the organization and HRM
practices that have been shown to contribute to organizational performance. The study
hypothesized that big universities operationalized as having greater than 1000 academic and
administrative staff can be differentiated from small universities, defined as employing less
than 1000 academic and administrative staff in their use of HRM practices. He found that
contrary to prior research findings, size did not correlate with the usage of HRM best practices.
Both big and small universities used similar and identical HRM practices.
 Research Methodology

The present study highly descriptive with little exploratory in nature. Convenience sampling
was used to collect data from local business owners/micro businesses regarding their wage
practices and to gather insight on the feelings of employees towards the wage system. The
above hypothesized relationships were tested using data collected through self-administered,
structured questionnaires containing essentially close-ended questions.
 Sources Of Study

Sources of study are both primary and secondary. Secondary data is reviewed in the form of
previous research papers, articles in research journals, newspapers, website related to study
while primary data has collected by interviewing local small businesses in the locality by
simple questions asked impromptu and casual conversations with the employees.
 Sample Size

For the purpose of analysing the differences between government rates and actual rates, using
convenience sampling, 10 employees of varying skill grades were questioned.

Unskilled: 5

Skilled: 3

Highly Skilled: 2
 Hypotheses
H1: The workers are not getting minimum wages set by the government.
H2: The workers are not getting wages as expected to run a household.
 The Importance Of HRM In Small Businesses

• Number of SMEs in India: The number is estimated to be at 42.50 million, registered &

unregistered together. A staggering 95% of the total industrial units in the country.

• SME & Employment opportunity: Employs about 106 million, 40% of India’s workforce.

Next only to the agricultural sector.

• Products: produces more than 6000 products.

• GDP Contribution: Currently around 6.11% of the manufacturing GDP and 24.63% of

Service sector GDP. (Source: msme.gov.in)

Integration of HRM refers to the involvement of HRM in the formulation and implementation
of organizational strategies and the alignment of HRM with the strategic needs of an
organization (Schuler and Tackson, 1999). Buyens and De Vos (1999) argue that in order for
HR to be a strategic partner, HR manager should be involved in strategic decision making
alongside other senior managers, providing greater opportunity to align HR goals, strategies,
philosophies and practices with corporate objectives and the implementation of business
strategy. This involvement would include the membership of HR managers in the most senior
management teams in the organization. This would provide an opportunity for HRM to
represent its concern and influence business strategy from the outset of decision making. The
chances of integrating and value creation may be further increased if the senior HR manager
and the CEO have an opportunity to establish a relationship. In this role, HR managers need to
have knowledge of core markets, competitors, costs, profit indicators and stakeholders to be
considered equal business partners (Chaddie, 2001). The involvement of senior HR manager
in a firm’s senior management team provides an important channel for interactive information
flow and communication. To achieve strategic integration and alignment of HRM with business
strategies, a documented HRM strategy would also be useful (Budhwar, 2000; Teo, 2002) as it
can make more concrete the role and authority of HR managers in corporate decision making
and increase capacity to cope with externalities such as tight labour market (Cunnigham and
Deborah, 1995). A documented HRM strategy helps the organization to develop an HRM
vision and objectives and to monitor performance. Some empirical evidence from previous
research indicates that the full impact of HR practices on organizational performance occurs
when HR practices are strategically congruent and consistent with each other (Khatri, 1999)
 HRM Practices In SMSEs

HRM is concerned with all aspects of employment and management of people in

organizations. HRM covers the following activities: strategic human resource management,
human capital management, corporate social responsibility, knowledge management,
organizational development, securing resources (human resource planning, recruitment and
selection, and talent management), management performance, learning and development,
compensation management, employee relations, employee welfare, health and safety and the
provision of services for employees. HRM practice has a strong conceptual basis borrowed
and based on the science of organizational behaviour and strategic management, human
capital and theories of industrial relations.

This database was built with the help of a large number of research projects by different
researchers in the field of management. The purpose of this paper is to give a general
introduction to the practice and concepts of HRM. The paper defines HRM objectives,
theories, characteristics, components of HRM systems, development of HRM as a method for
managing people, the views expressed in relation to key performers, the context in which it
works HRM and ethical dimensions that affect the human resource policy and practice.

Among others the author Ronald R. Sims says "The key to a continued survival and
successful organization is not rational or quantitative approaches, but differs significantly in
activities of employees and managers that are based on the support and mutual loyalty. The
success of the organization today and tomorrow is being seen more and more dependent on
the effectiveness of human resource management" (Sims, 2002, p.1). Human resource
management (HRM) in contemporary economics is linked to a company’s success measured
through numerous organizational measures (profitability, productivity, rate of innovation,
market share, environmental performances, etc.). The role of HRM in large enterprises is
relatively known, especially when the competitiveness and sustainable increases.

As firms grow, there is a need to administer the HR function. HRM department is considered
responsible for executing all HR function in best interest of the firm. Human resource functions
can be defined as the way all tasks and responsibilities regarding HRM are organized within
organizations. HR-functions include all roles, tasks and responsibilities from the staffing
process, to the training and development via the performance planning and appraisal to
remuneration and other rewards to finally the termination of employment. The HR-function
does not only involve managers in general or at HR departments, but also line management
and even the employees themselves. Various organizational contextual factors determine the
need for some specific HRM practices causing HR function (as principal task of HRM
department) to play their role effectively. However, HR functions depend on some other
factors, as Hendry and Pettigrew (1992) explain that “while changes in human resource
practice.
 Analysis Of Wage Disparity of Employees of Micro Businesses
For an average 26-day month in Cuttack
I II III III-I III-II
Avg. Expected %age
Salary to Difference difference
Govt. meet Avg. Difference from from
minimum household Actual from govt. expected expected
wage rate expenses wages rate rate rate
Unskilled 7748 8000 7500 -248 -500 -6.25
Skilled/Clerical 10088 14500 11500 1412 -3000 -20.6897
Highly Skilled 11648 18500 14000 2352 -4500 -24.3243
Table: (3.1)
Unskilled workers are usually involved in loading/unloading jobs and half of the workers were
from Bihar. They have to meet their expenses, travel home once in a while and send money
every month back home to their dying parents and growing kids (often one too many!). For
them, a 6.25% lesser salary is also a big deal. The difference can cost them their monthly ration
of onions!

Clerical post employees are usually graduating from local private or aided colleges who
managed to get a private job after graduating and had to settle for it because of urgent family
needs and responsibilities. They usually know a good deal of computer including basic
accounting work, spreadsheets, e-mailing, etc. Yet, 21% difference from their expected wage
means they usually fail to send their children to decent English medium schools and afford
good doctors’ appointments.

Highly Skilled workers include those who are in semi-management posts/look after one
department/profit centre of an organisation. They are usually those who have done some
preparation for competitive exams and/or completed post-graduation and thus have a higher IQ
than the aforementioned. A 24% difference means they cannot afford a good middle class living
with good smartphones, TVs, vehicles, and these are tantalizingly close for them, thus always
leaving them wanting for more and usually, most dissatisfied of the lot.
 Conclusion

SMEs are the real mainstays of the developing economies to substitute the substantial scale
ventures, create more work, between intercede farming and modern area, contribute
mechanical generation and enhanced fare income.

Measure of debilitated MSMEs is expanding step by step because of antiquated generation

prepare, poor consumer loyalty and dependability and less worker confidence. This review
establishes that switch over intension is high among the representatives in the MSMEs because
of nonappearance of medicinal offices, poor workplace, absence of welfare measures,
insufficient pay and poor modern relations.

It infers that without human exertion administration cannot accomplish their objectives and
targets in gainful way thus, focus more on the significant resources of the ventures to detail and
practice the appropriate and reasonable HRM practices to improve the efficiency in supportable
way.

This review is point of confinement to all MSMEs of Odisha to focus the issues of HRM
practices. Part of issues and elements were impact the achievement and profitability of the
MSMEs along these lines, future reviews would highlight the diverse issues with various
populace in the across the country to improve the efficiency of the MSMEs in beneficial
approach to contribute the country practical advancement as entirety.

Suggestions

The government should see the reality and revise the wage rates as per market inflation. The
employers should understand that employees are their biggest assets, even if they do not
become a part of the balance sheet. Performance/profitability-based incentives in forms of
gifts should be given to clerical/highly skilled personnel which will increase their sense of
belongingness to the firm.
 References:

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Delhi.

2. Vettriselvan, R. & Balakrishnan, A. (2011). Labour Management Practices in Small Scale

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Publication, Coimbatore, Vol.2, (ISBN-81-88223-00-X).

3. Marlow, S. & Patton, D. (1993). Managing the Employment Relationship in the Small Firm:
Possibilities for Human Resource Management. International Small Business Journal,
22(4):57-64.

4. Hodgetts, R.M. and Kuratko, D.F. (2001), Effective Small Business Management, 6th
Edition, Fort Dryden Press, Worth, Texas.

5. Jashwini. N. (2010). Labour Management ‘Non’ Cooperation. The IUP Journal of

Organizational behaviour, IX(3), 68-85