Are we approaching the end of cheap labour in Thailand?
One of the most important expected changes to the Thai economy in 2012 came on April 1, when the minimum wage in Bangkok and six of Thailand's 75 provinces was boosted from about Bt215 per day to Bt300 per day - an unprecedented 40 per cent jump.
The wage hike will be applied to all provinces in January 2013, and will fulfil one of the government’s major campaign promises. There are concerns about triggering inflation, the ability of small and medium-sized enterprises (SMEs) to cope, and questions about implementation, but overall Thailand’s economic brass – both public and private – seem united on the need to make the move. Public debate in late 2011 and early 2012 was not over the wisdom of the policy, but on the methods to be used and the speed of implementation.
The current government won the general election last year on a campaign platform that includes agricultural subsidies, reducing the corporate tax rate and boosting the minimum wage. The lowest amount paid to workers in the informal economy has varied in Thailand, ranging from about Bt 215 a day in the most economically advanced areas, such as Bangkok and the resort island of Phuket, to Bt 159 in northern and northeastern provinces, which are economically less developed. A main motivation for this unequal scale has been to encourage the spread of manufacturing jobs beyond Bangkok by offering lower labour costs.
Workers have been getting cost-of-living adjustments in recent years, but this large hike is intended to be a rebalancing of wealth. It is also in part an attempt to make domestic purchasing power a greater factor in the Thai economy, which has been exposed to the global economy in recent years to the extent that the government has pledged to reduce reliance on exports.
The plan was to boost the lower-paid areas to Bt215 in 2012, and then to Bt300 by 2013, creating parity across all provinces. At that point the minimum wage would be frozen until 2015, and would represent an average raise of 40 per cent for those Thais affected. This timetable came as a negotiated solution between employers, government and organised labour. The latter party had been pushing for an immediate increase to Bt300 for all workers. Though some economists feared a decline in foreign investment as a result, and an additional challenge for industrial concerns already reeling from flood impacts, most of the concern expressed has been about the speed of the hikes.
One early consequence may be a reluctance to hire in the formal economy, and an overall pushing of workers into the informal sector. Despite official projections of a minimal impact given that labour cost is officially estimated at a mere 9-12 per cent of total production cost, there are reports that in some labour-intensive industries such as textiles, producers have moved to industrial estates near the borders with Myanmar and Cambodia to take advantage of the cheaper migrant workers available there, who cross the border daily for work and are paid lower rates than Thais.
Overall, I think SMEs in Thailand are most at risk of being unable to handle the additional costs. So far, the government has helped smaller businesses through various policies including tax deductions on the higher wage costs, reduced social security payments, and a special credit programme from state-owned banks.
Inflation is also a concern whenever millions of people get a large raise, but so far inflation figures have remained muted.
In addition to the minimum-wage hike, civil servants may also see a boost in income from a plan to ensure that government workers with a degree are paid a minimum Bt15,000 monthly. This is intended to close the gap between salaries for government work and salaries in the private sector, in the hope of attracting and retaining talented people.
I think these policies can serve their purpose of enhancing the welfare of Thai workers, and they come at a time when Thailand needs to boost the domestic economy during the global economic slowdown. However, the minimum wage hike should only be used as a short-term solution to support the plight of low-income workers. Sadly, most Thai workers are unskilled or semi-skilled – our latest labour force statistics indicate that only 10-15 per cent of the Thai labour force of 38 million people have a university or vocational-level education.
Ultimately, policy-makers need to focus on how to upgrade the skills and productivity of Thai workers through better education, training and access to opportunities. Only then will we really see the end of cheap labor in Thailand.
Dr Chodechai Suwanaporn is executive vice president, economics & energy policy, PTT Public Company Limited. [email protected].
