Much have been said about the need for economic growth of a country being translated into personal wealth and prosperity. For a small minority of the population, wealth is not an issue, as profits for enterprises are directly proportional to their personal wealth. This small minority are the conglomerate elites, heading large corporations and enjoying every bits of the wealth generated in business transactions. However, for the large majority of the population, the profits does not necessarily go to them. There need to be a mechanism of some sort how those profits can be shared with them, not as a form of direct transfers or gifts, but rather as a form of compensation for the work done. There need to be a mechanism to create employment, allowing more parties to contribute and adding value to the entire ecosystem. However, jobs are not supposed to be created just for the sake of creating jobs, or as a form of social responsibility. It has to be created because there is space for workers to contribute, adding value through highly productive efforts.

A simplified assumption will deduce that as a country grows its economy, with increasing aggregate demand and GDP, companies will be hiring more workers. As the labor input increases, output will increase to meet the higher consumer demand. Of course, this only hold with the assumption that the market is perfectly competitive, that if a firm does not increase its production, other firm will enter the market and grab the extra market share. What if the market is not competitive enough? increasing demand might not be met with increasing supply. Supply might remain scarce, only for price to burst even more. There is no absolute advantage for companies to increase their production, as the option to remain status quo and reaping more profits with the same effort is equally attractive. With no change in production, there is no need to increase employment, there is no need to share the wealth with others. Such could be said for large multinationals with specialized products and services, or those companies with absolute monopoly powers, or even for companies with very small competition, ie dominating the market. A sneak peak into the employment trends speaks volume:

The data suggest that for the period 2012 - 2016, the total employment from large firms remain roughly the same, at around 3.5m workers. Luckily enough, our Small Medium Enterprise (SME) are growing strongly, contributing to the overall increase in employment YoY. In Malaysia, SMEs are defined as below:


Comparing the employment numbers between large companies (LC) and SMEs, one might ponder, how much each group contributes to the national GDP? Despite having employed the majority of workers, SMEs contribution is only about a third of what LC is contributing. The figure below depicts the percentage of SME GDP contribution and the SME contribution to national employment.



Despite slowly growing in percentage, the total contribution is only about 36% of the overall GDP. This is despite the total employment is about 65%. In other words, about two-thirds of the workforce is sharing only one-third of the economy's wealth. Thus, no wonder the growth in GDP is not reflected in most of the workforce's paycheck.

However, all this are not something unusual. Most of the countries in the world will have a similar SMEs profile as such. According to a report by the Organisation for Economic Co-operation and Development (OECD) titled 'Enhancing the Contributions of SMEs in a Global and Digitalised Economy', SMEs assume a key role in national economies around the world, generating employment, value added and contributing to the innovation.

Such findings raises a few pivotal questions:

i) Why does the LCs keeping their employment number low, despite having increasing growth in profits? Are they operating as monopolist, or is there lack of competition in the businesses that they are doing?

ii) With the digitalisation and disruptive technologies, the entry / barrier cost is getting lower for new businesses to enter the market, will the behaviour of such LCs change with this development?

iii) To move further with inclusive growth, from a government's point of view, which is one better: LCs to hire more employees, or for more SMEs to enter the market? (Of course the latter is easier, but which one is better?)

Of course the findings are very high level and huge generalization was made by classifying businesses into only two (2) categories: SMEs and LCs. A clearer and better picture would probably surface if we were to divide the LCs into local LCs and Multinational Corporations (MNCs).

The other key assumption made here is the fact that we are only looking at the question of with higher profits, will firm decide to hire more people or will they remain status quo. There could also be another explanation: the productivity of employees in LCs are two (2) times higher than those of SMEs. LCs could be equipped with the right capital and technology equipments that their employees could perform two times better and produce two times higher output, contributing to the higher share of GDP. However, this can only be validated if we were to scrutinize the median income between the two groups according to job level classification by ILO. Only then a fair assessment can be said between the two groups' productivity.

Reference:
i) Economic Census 2016: Profile of SMEs, DOSM
ii) SME Annual Report 2016/17, SME Corp
iii) Guideline for new SME Definition, 2013, SME Corp