Thailand: Parsing the minimum wage hike debate

• Aug 24, 2022

As Thai workers feel the pinch of soaring living expenses, the government has announced plans to raise the daily minimum wage by October to help alleviate the burden. However, some analysts argue the key to raising the quality of the Thai workforce lies in productivity.

Q: What are the details of Thailand’s minimum wage increase?

The tripartite national wage committee, which comprises representatives from the government, employers and labour unions, plans to finalise the details of a proposed wage hike this month and submit them to the cabinet.

The daily minimum wage is expected to be increased to between 329 and 353 baht, or a rise of 5-8%. The increase is projected to be divided into 12 categories depending on each province’s GDP growth and economic conditions.

“It is the right time for an increase. The employers agreed with the move because they want their employees to stay. We want to increase the minimum wage by 5-8%. The calculation is based on the country’s current GDP and inflation. We also look at the GDP of each province and then appropriately propose different figures,” said Labour Minister Suchart Chomklin.

The move would be the first minimum wage increase in more than two years. Mr Suchart said he hoped the cabinet would approve the new wage in September so it can take effect on Oct 1, three months ahead of the original schedule for January 2023.

Q: What is Thailand’s minimum wage in 2022?

The current minimum wage varies depending on the province. The highest rate is 336 baht per day in Chon Buri and Phuket, while the three southernmost provinces of Narathiwat, Pattani and Yala have the lowest wage at 331 baht.

Thai households are saddled with their highest levels of debt in 14 years. The University of the Thai Chamber of Commerce recently interviewed 1,260 respondents whose income is below 15,000 baht per month, finding that 99% were in debt.

The survey estimated the average debt per household was 217,952 baht, up 5.9% from a year earlier and the highest level recorded in 14 years.

Some 31.5% of respondents have defaulted on debt repayments in the past 12 months. They have asked the government for assistance, including raising the daily minimum wage to keep up with the higher cost of living, rising expenses and product prices.

The headline inflation rate hit a near 14-year high of 7.66% in June, while Thailand’s central bank raised its interest rate earlier this month by 25 basis points to 75 basis points.

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, agreed with the Labour Ministry’s minimum wage hike proposal, saying the 5-8% wage rise is acceptable given that the prices of consumer goods and manufacturers’ production costs have risen on a continuous basis, weakening consumer purchasing power.

Q: What could be the factors that slow down a minimum wage increase?

Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities, called the topic of raising the minimum wage “sensitive” in a recent Facebook post.

He said the labour force wanted the hike to be substantial and in line with increasingly expensive living costs, while employers expressed concern that the hike would push their balance sheets into the red.

“Over the past few years, both the minimum wage and the average salaries of the Thai workforce have increased slower than the inflation rate. Since 2015, real wage growth has barely increased at all despite ongoing economic growth,” Mr Pipat observed.

He said three factors — low productivity gains, lower negotiating power from the labour side, and the availability of cheap labour from immigrants — contributed to this phenomenon.

“Over the past few years, Thailand has had a meagre increase in labour productivity, to the point that employers rarely increase workers’ pay. It could be because there has been a change in the country’s economic drivers from manufacturing to more of a reliance on tourism and services, which have lower productivity gains,” said Mr Pipat.

“The workforce may also have less negotiating power and do not receive appropriate compensation from the growing economy. In addition, there is an increasing availability of cheap labour from immigrants. As a result, this drives down the wages of non-skilled workers while simultaneously exacerbating the issue of a skilled labour shortage. There are growing wage disparities, but the overall average real wage increase has not improved at all.”

He said other issues will soon become more apparent, including household debt, social disparity, and the economic security of Thais, especially those entering retirement age.

Mr Pipat said the key to raising the quality of the Thai workforce does not come from hiking the minimum wage, but rather in productivity gains through proper investment, technology development, the adjustment in the country’s economic fundamentals and an increase in market competition.

Q: What is the private sector sentiment?

The Employers’ Confederation of Thai Trade and Industry (EconThai) recently conducted a survey of 300 companies and found that less than half (47.4%) of the respondents could manage to maintain employment of staff after the economy turned sluggish as Covid-19 lockdown measures to contain the spread took effect. Up to 36.8% needed to lay off their workers, while 15.8% said they hired new employees.

“We disagree with the rush to enforce the new rate on Oct 1 because many businesses are unprepared for a new storm,” said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, referring to a wage hike that would increase operational costs.

He said the government should stick to the original schedule earlier agreed by the tripartite national wage committee to have the wage rise take effect on Jan 1 next year.

Marisa Sukosol Nunbhakdi, president of the Thai Hotels Association, said an increase in the minimum wage would have a direct impact on small and mid-scale hotels in second-tier cities with lower tourism demand as most of them are still able to hire workers at the current minimum wage.

However, most 4- and 5-star hotels, particularly in Bangkok and major tourism provinces, have already increased their minimum wage since Thailand reopened, in part because of a labour shortage across the industry.

Q: What do some Thais do to earn a higher wage?

South Korea is a popular destination for Thais seeking overseas employment because it has high wages, driven by labour shortages in the East Asian country. The situation has attracted illegal job hunters from Thailand.

The number of Thais working illegally in South Korea is estimated at 140,000, with a spike in illegal job seekers entering the country as tourists.

Thai nationals are legally employed in South Korea under the Employment Permit System, which requires workers to meet qualification requirements, including passing a Korean language proficiency test.

Citing a study on the employment of Thai workers in South Korea, Samarn Laodamrongchai, an academic at Chulalongkorn University’s East Asian Studies Institute, said Thai workers usually face a language barrier and many abandon work out of boredom as they cannot communicate with colleagues and employers.

Source: https://www.bangkokpost.com/business/2375650/parsing-the-minimum-wage-hike-debate