10 Can productivity in SMEs be increased by investing in workers’ health?
We employ here a simple and necessarily reductionist framework that tries to combine the “common-sense” view with the more elaborate approach that informed the
study of Croucher and colleagues. As depicted in figure 1, a number of defined and potentially measurable aspects would affect working conditions in a company. These
working conditions would in turn affect key aspects of why people can and will be productive. This model focuses only on those aspects of work that can be influenced by
government regulatory action and does not take into consideration management and motivation or “social capital” and “company-as-community”. It also leaves out those
aspects that might be affected by government action but are not considered regulatory, such as “capabilities” and “lifelong learning”. The inherent “non-productive” aspects of
good health which are crucial for the well-being of workers and their families are reflected in the “health and family” aspect of the benefits.
Although there is descriptive evidence on the relation between working conditions and enterprise performance
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, there is a clear lack of empirical evidence using enterprise- level data. It would be highly desirable to have country-based studies that analyse
longitudinal survey data for SMEs, in order to establish the relation between working conditions and performance at the enterprise level.
Conversely, if social protection positively influences productivity, gaps in social protection have a negative impact on it. Absenteeism, high staff turnover, costs of
accidents, lack of motivation − all these factors influence quality and quantity of output. Again, the empirical basis for this claim at the level of SMEs is lacking.
Figure 1. The influence of regulation on working conditions and productivity seen as investments
which yield benefits
This model forms the basis of further analysis and recommendations in this literature review. In what follows, the elements contributing to social protection will be discussed in
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Subramony 2009 provides a meta-analysis of 65 empirical studies linking bundles of human resource management practices to enterprise performance.
Can productivity in SMEs be increased by investing in workers’ health? 11
Chapter 4, their impact on working conditions in Chapter 5 and the effect on productivity in Chapter 6. Chapter 7 will provide an overview of current legislation concerning social
protection and SMEs in selected countries, as well as a case study on India.
3.5. Economic impact of pro-SME policies
In many developing countries, SMEs are generally seen as vital sources of economic growth and employment, and a wide array of interventions and programmes have been
implemented in order to promote them Tai and Quynh, 2007. Only one study found no support for the theory that SMEs are a significant source of growth or poverty alleviation
Beck and Demirgüç-Kunt, 2004 and argues that larger companies may be able to provide employment that is more secure, better salaried and includes more benefits.
While strong economic growth corresponds with a strong SME sector, this relationship is not causal. Rather, both seem to depend on the general business
environment Ayyagari et al., 2007; Beck and Demirgüç-Kunt, 2004. An analysis of SMEs in Japan found that the entry of new SMEs to the market forces those already
existing to become more efficient; also, that an important determinant for the creation of an SME is the associated cost of entry Kawai and Urata, 2001. Multiple studies have found
that low barriers to entry and exit of enterprises are important for economic growth and development Carre et al., 2002.
It seems therefore that a strong SME sector is a symptom, rather than a cause, of economic growth. While policies aimed specifically at promoting these enterprises might
not significantly increase a country’s economic output, policies that encourage the business environment in general are likely to benefit the entire economy, including SMEs. This does
not refer to more informal employment, but rather to a large formal economy that is only lightly influenced by labour legislation. Indeed, a study of several countries found that the
informal economy was lowest in countries which combine a low regulatory burden with an effective regulation enforcement system Kus, 2006.
To some extent these views are implemented in policy decisions. Increasing the managerial flexibility of entrepreneurs and the ease of doing business are widely held to be
measures that will result in growth of the SME sector World Bank and IFC, 2013. In contrast, high taxes, labour regulations and contributions to health insurance schemes are
viewed as constraints on medium-sized businesses by driving up their costs and lowering their margins South African Chamber of Business, 1999.
It has however been shown that the focus on reducing administrative burdens might result from an over-reliance on business costs as an indicator Kitching, 2006. The effects
and consequences of labour regulation extend beyond financial considerations on the part of employers; they influence many individuals and mechanisms. Thus, statements such as
“labour regulation impairs small enterprises” are ignoring the many dimensions in which small enterprises are likely to benefit or suffer from regulation.
As for the effect of social protection, it is worthwhile to bear in mind the mutual interdependence of pro-poor growth and social protection:
A successful package of economic and social policies must produce i a good rate and pattern of economic growth to reduce poverty directly; ii a well-designed system of social protection
to defend those still left in poverty despite the growth achieved; and iii internal consistency between the two broad categories of policy involved, such that neither cancels out the positive
effects of the other. It is particularly crucial that social protection policy be as consistent as possible with the creation of good jobs, since it is mainly through job creation that growth
contributes to poverty reduction. … Although economic growth is almost always a key factor in poverty reduction, this is especially true for low-income, often mainly agricultural
