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18 February 2013
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Study weighs costs and benefits of wage increase

A new study by the Thailand Development Research Institute (TDRI) examines the pros and cons of the increase of the minimum wage to Bt300 minimum per day.

The study, which also looks at the effects of the recently introduced Bt15,000 monthly minimum salary for holders of bachelor’s degrees, was conducted by TDRI scholar Assistant Professor Yongyuth Chaelomwongse and his team with the support of the National Research Council of Thailand (NRCT).

The government’s increase of the daily minimum wage by as much as 80 per cent in some parts of the country to Bt300 in two phases (starting April 1, 2012, and January 1, 2013) is a major policy with huge impact on the Thai labour market, the study said.

Looking at the positive aspects, the study found that uniform higher wages nationwide should contribute to generally better living standards for workers, while boosting domestic demand and tax revenue for the state.

Moreover, 3.2 million workers, or 30 per cent of employees in the private sector, should benefit from the minimum-wage increase. The higher wage should narrow the income gap and benefit low-paid workers, who tend to have little bargaining power, according to the TDRI.

Among the drawbacks is the higher cost of production for labour-intensive industries, or those requiring highly skilled workers, such as textiles/garments and the trade and services sectors. There is a cost-push inflation risk of 1 percentage point, as the higher cost of production could affect competitiveness and contribute to higher prices of Thai goods, the study warns.

Employers will face additional costs of about Bt1 billion per day from the higher wages, which could force some small and medium-sized enterprises out of business, shift others into the “informal economy”, and result in business relocations or closures. If productivity cannot be increased by 8-10 per cent, gross domestic product may decline by 1.7 per cent from the norm, the study said.

The research found that the sharp and abrupt minimum-wage increase would have the biggest impact on the labour-intensive agricultural sector. Employers in that sector will face additional labour costs of about Bt2.12 billion to Bt2.94 billion per month, an increase of 21.71-29.99 per cent.

Hotels and the food-service sector are second on the list of businesses that will be significantly affected by higher labour costs, with additional expenses of about Bt465 million to Bt861 million per month, or a rise of 7.82-14.32 per cent rise in operating costs, the study found. This is followed by the construction sector with additional costs of Bt836 million to Bt1.31 billion, or an increase of 7.01- 10.98-per-cent increase in operating costs.

Low-profit-margin industries and sectors with a high percentage of labour inputs are susceptible to higher wage costs, which will affect the economy in the short and medium terms.

The uniform minimum daily wage rate nationwide will discourage manufacturers and business operators from setting up factories more than 300 kilometres from major cities to avoid the higher distribution and transport costs, the TDRI said.

Thailand relies on foreign investment to expand its production base to support the influx of a new labour pool each year. If Thai labour costs are higher than those of neighbouring countries – such as Vietnam, whose wage rate is 2.3 times lower – investment inflows into Thailand will decline, according to the report.

In the short to medium term, Thailand cannot abandon labour-intensive industries, but will have to switch gradually to industries requiring higher technology and skills to remain competitive, it said.

The higher wages in Thailand will attract foreign workers from neighbouring countries, including more illegal workers, the study predicted. Currently, there are 3.8 million foreign workers in Thailand, comprising 890,000 legally registered workers. The higher wage in Thailand contributes to the influx of illegal workers, which will burden social and welfare systems as well as pose a threat to national security in future, the study warned.


First published in The Nation, 12 January 2013


Yongyuth Chalamwong, Ph.D.
Research Director, Labor Development