Study weighs costs and benefits of wage increase

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 (S$12.14) 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.

DRAWBACKS

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.

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