TDRI analysis highlights impact of new minimum wage

Government measures to improve labour skills to match market demand are needed to reduce the widespread impact of the daily minimum wage hike in both the short and the long term, says the Thailand Development Research Institute (TDRI).

Yongyuth Chalamwong, a senior researcher, said the 300-baht daily minimum wage that took effect nationwide on Jan 1 represents the biggest increase since the onset of the concept¬† –¬† about 40%.

“The timing of the increase in the wage is probably appropriate, as the labour market for low-income workers is tight,” he said.

“The business sector, especially SMEs, inevitably must improve efficiency and labour productivity with measures such as lay-offs, freezing headcounts and increasing technological efficiency. The government and relevant agencies should coordinate to plan and improve labour skills to match market demand.”

The TDRI found the agricultural sector will be hit hardest by the hike, with monthly wage costs rising by 2-3 billion baht or 22-30%, followed by hotels and food, each of which will shoulder a rise of 500-900 million baht (8-14%).

The construction sector will bear a monthly increase between 800 million and 1.3 billion baht (7-11%).

Businesses overall will see operating costs rise by 4% on average, affecting 90-94% of companies in all size segments.

“The wage hike will take a toll on 15 groups of labour-intensive export firms, as the Thai wage is still higher than that of competitors such as Vietnam, Indonesia, India and Bangladesh,” said Mr Yongyuth. “This will erode Thailand’s export competitiveness and create long-term, structural economic problems.”

The wage increase to 300 baht effectively makes Thailand No.3 in the region for wage levels, after Singapore and the Philippines.

Laos, Vietnam and Cambodia have wages three times lower than Thailand’s, and labour-intensive firms could shift to these nearby countries.

Mr Yongyuth said the flat minimum wage nationwide will result in confinement of industrial firms to large cities, as firms lack incentives to relocate more than 300 kilometres from Bangkok.

“This will undermine the country’s efforts to expand the industrial sector to remote provinces in order to distribute income better and keep people in their hometowns,” he said.
—–

Effects of the hike

Positive

  • Equally increases income for workers nationwide. Improves people’s well-being by increasing money circulation in the system.
  • Directly benefits 3.2 million workers nationwide or 30% of all employees in the private sector.
  • Helps reduce income inequality, especially for low-income workers with less bargaining power.

Negative

  • Significantly increases expenses for labour-intensive industries such as textiles, garments and services.
  • Potential for inflation that could reduce competitiveness of Thai goods as relative costs rise.
  • Rise in wage expenditures by 1 billion baht per day could decrease the number of SMEs in the industrial sector and shift them to the informal economy.
  • If workers fail to raise productivity by 8-10%, then economic growth could decline by 1.7% from normal.

________________________________

First published in the Bangkok Post, 12 January 2013