Why is the Minimum Wage in Thailand So Low?
The minimum wage in Thailand is currently the lowest in Southeast Asia, with only four percent of Thai workers earning more than the U.S.’s minimum wage. While this does provide some compensation for basic living expenses, it does not cover everything. Those who earn less than that cannot afford to have their children and live comfortably. However, an increasing minimum wage in Thailand would make life a little better for the working poor. But before we can see what the future holds, we should first know why it is so low.
Average daily minimum wage
The government of Thailand has enacted a new law requiring employers to pay workers at least 300 baht per day. Failure to do so could result in six months in jail and a 100,000 baht fine. The policy was part of the ruling Pheu Thai Party’s election campaign pledge and has been implemented in seven provinces since May 1, 2012. The new law has created a controversy among labor unions, academics, and employers alike.
The National Economic and Social Development Board estimates that the new law will raise the average wage in Thailand by 22 percent, and almost 70 percent in Phayao, Surin, and Tak. The new law is expected to hit labor-intensive industries the hardest. Various academics and business association groups have said that the 300 baht increase happened too quickly. In fact, five companies have closed their operations due to the new minimum wage policy.
The new law will increase the minimum wage in Thailand by 1.7%, and the average daily wage in Bangkok will rise by 3.3%. The new rates are calculated based on the cost of living index, national GDP, labor productivity, and the social and economic situation of each province. The average wage is still far below the minimum wage in other countries. But the new laws don’t mean the end of poverty. People who are not currently working are encouraged to look for alternative employment.
Workers in Thailand are entitled to six days of paid annual leave and at least thirteen public holidays. It’s also important to remember that you should not work more than eight hours per day. Additionally, you can only work 40 hours per week if your job requires dangerous work. Most employers in Thailand will pay you 36 hours of overtime per week. However, it is important not to overestimate the minimum wage. If you are not getting enough money, you might end up owing your employer thousands of baht.
The increased income of workers will boost consumer spending, force productivity gains, and stimulate innovation. In the long run, this will help Thailand avoid slipping into the middle-income trap. The new minimum wage will also push Thai workers to improve their skills and prepare them for increased labor competition once the AEC opens in 2015.
Minimum wage elasticity of employment
Wages have become a more important part of a country’s GDP, but in Thailand they haven’t kept up with inflation, resulting in stagnant average growth of real wages for most workers. The Gini coefficient in Thailand, which measures the elasticity of employment and its relationship to GDP, is 0.43, one of the highest in the region. The recent escalation in minimum wage rates has weakened this relationship.
The minimum wage elasticity of employment in Thailand is reported in Figure 3 in the left-hand column for three broadly defined production sectors: construction, manufacturing, and services. It is interesting to note that the employment share of services was already declining two quarters before the minimum wage was increased. After the policy was implemented, this share further declined. Nevertheless, the elasticity of employment for these three sectors was higher than for services.
The effect of a higher minimum wage on employment was smaller for young, low-skilled workers than for average-skilled workers. However, the impact of a higher minimum wage on wages for young low-skilled workers was 0.4885 and 0.361, respectively, five and six quarters after. Therefore, an increase in the minimum wage may increase employment without increasing the gap between the poor and the rich.
Although the minimum wage is linked to inflation, there are still some challenges associated with the calculation. The elasticity of employment should be linked to the labour productivity of a country’s workers. In addition to inflation, the minimum wage should be adjusted for other factors. One such variable is the ratio of the minimum wage to the average monthly income of the poor. It should be adjusted so that part-time employees receive the same amount of money as full-time workers.
The Thai government recently increased the minimum wage in 2013 for its formal sector workers in all provinces. The total provincial employment of manufacturing workers fell by 16,000 after the minimum wage increase. This was largely due to the increase in wages. The minimum wage also resulted in a decrease in the unemployment rate in Thailand. This trend is likely to continue if the minimum wage is not increased. For instance, if the minimum wage is increased, the Thai government may be able to finance national health insurance by raising the payroll tax on the low-skilled workers.
Impact of minimum wage increase on productivity
A recent study looked at the relationship between minimum wage levels and productivity growth. Researchers used data from 11 OECD countries and found that an increase of ten percent in the minimum wage was associated with two percentage points of increased productivity. This finding suggests that minimum wages may spur productivity growth, but they will do so only if their higher levels are accompanied by other policies. For instance, a minimum wage hike in China may increase the productivity of firms that are already relatively productive.
If we want the minimum wage to keep pace with productivity growth, we have to reverse the current trend of stagnant wages. The increase in the minimum wage should be at least as fast as the increase in productivity over the past 50 years. While it would take institutional changes to reverse this trend, there are some policies in place that can help reverse the downward spiral of productivity. The productivity growth figure is based on net output and adjusts for differences between the consumer price index and NDP deflator.
Despite this potential shift in costs, the effects of the minimum wage increase are minimal. One study showed that a minimum wage increase in Colorado boosted productivity by a few percent, while a minimum wage increase in Georgia did not. The higher wages may have an indirect effect on worker well-being, but the higher costs aren’t shared equally by workers and employers. For these reasons, a minimum wage increase in Georgia is unlikely to increase productivity significantly.
One study found that a minimum wage increase had a greater negative employment impact during recessions than it did during periods of economic expansion. But this effect was small in recessionary periods and larger during expansions. In contrast, indexing the minimum wage to inflation has no larger negative employment effects. This suggests that a minimum wage increase in Georgia could actually reduce employment, even when it isn’t targeted to low-skilled workers.
Impact of minimum wage increase on geographical disparity
The recent Thai government introduced a new minimum wage in January. This raise is likely to increase productivity in the country and reduce the geographical disparity in Thailand. This rise will also help to modernize Thai businesses and reduce the pressure for workers to relocate to Bangkok in search of higher wages. However, workers are wary of upsetting traditional family relationships, which provide protection and social security for workers. To make matters worse, the minimum wage is not even enforced in some areas of the country.
The new policy is expected to increase Thailand’s average wage by 22.4 percent, and almost seventy percent in Tak, Surin, and Phayao provinces. The new minimum wage will likely impact labor-intensive industries the hardest. Some business associations and academics claim that the 300-baht increase was too quick. Some companies have closed their doors after citing the new minimum wage policy.
The poverty rate in the northeast of Thailand is much higher than in the south and the southwest, but it varies greatly by region. This is in part due to the fact that the population in rural northeast provinces tends to be less healthy than in the southeast. Inequality is also more pronounced in the northeast, and those living in rural areas tend to assess their health worse than those in urban centers.
Increasing the minimum wage in Thailand could reduce the health inequalities in the country. The Thai government should develop a national monitoring system that covers all workers regardless of their occupation. It will be especially useful in addressing gender disparities in health care. As of now, Thailand has the highest income inequality among developed countries. However, this trend may not be sustainable in the long run as the country struggles with the transition of its economy.
The Thai government may have taken this step to reduce income disparity. But if the minimum wage is not raised, there is still significant income disparity. The top 10% of the population is still disproportionately rich, which means that even if the minimum wage is increased, a substantial portion of the nation’s income will go to the top 10 percent of earners. The poorest 10 percent make up less than half of all Thai citizens.