Hike may see more than 100,000 SMEs go under

The rise in the minimum wage to Bt300 a day in seven pilot provinces could force up to 130,000 small and medium-sized enterprises out of business, according to a survey.

Dhurakit Pundit University Research Centre (DPURC) surveyed 536 of the 888,086 SMEs in the seven affected provinces on the topic of business adjustments and the recent government rescue packages for smaller businesses, between April 23 and 27. The SMEs were from various sectors including retail, service, production and hospitality in Bangkok, Nonthaburi, Pathum Thani, Samut Prakan, Samut Sakhon, Nakhon Pathom and Phuket. 

The survey found that the wage hike had pushed their costs up by 16.2 per cent, forcing them to raise prices by an average of 13.8 per cent.

In the eight months before the increase in the daily labour wage is implemented in the rest of the country, 38.9 per cent of the respondents reported that they might have to lay off some employees less than 20 years old, while 25.5 per cent said they might have to do so for employees aged between 20 and 25, and 15.3 per cent would probably lay off those who are above 25 years old. 

The survey suggests that youth employment will be affected by such measures. The results are consistent with the experiences of countries such as Australia, New Zealand, Belgium, Denmark, Italy, Germany, Greece, Ireland, Japan and many more, where youth employment has proved to be sensitive to changes in the minimum wage.

To cope with this challenge, 76.6 per cent of respondents said they would monitor their workers to maximise effectiveness and efficiency in output to offset rising costs; 61.3 per cent would try to keep non-labour costs under control; 45.1 per cent would replace labour with automation; 36.1 per cent would extend working hours; and 15.5 per cent would downsize, outsource or use other strategies.

One advantage of the data set used in this survey is that it is longitudinal, starting from early this year. Thus it can be used, together with other information, to translate into a projected failure rate of SMEs of about 10-15 per cent. With the total number of small and medium-sized enterprises in these affected provinces put at 888,086, the number of failed SMEs is expected to be 88,000-130,000. 

Even though the government recently offered rescue packages for SMEs, only 21.1 per cent of participating companies said they were interested in the loans for productivity improvement. However, 76.1 per cent of participants said they were interested in the fund for upgrading skills, while the remainder were not. Those interested in the fund said the amount of Bt42,000 per enterprise was not sufficient, however. 

Asked about the rescue package related to tax incentives, 19.2 per cent reported they would benefit from the tax exemption for buying new machinery, while 11.1 per cent would gain from full deduction of machine depreciation costs within one year, and 34.9 per cent believed they would benefit from the 1.5-times tax deduction to offset increased costs from the wage hike. 

DPURC director Kiatanantha Lounkaew said it was too late to reverse the policy to increase wages. What the government can do now is to turn this into an opportunity by upgrading the workforce and business processes, in a “big push” for improvements in productivity and efficiency. 

Kiatanantha added that the survey found that the new minimum wage was 14 per cent higher than the wage for low-skilled workers in Malaysia; 92 per cent higher than in Indonesia; 220 per cent higher than in Laos; 284 per cent higher than in Vietnam; and 380 per cent higher than in Cambodia. 

Except for Malaysia, all of those countries rank significantly lower than Thailand (at No 103, or “medium”) on the United Nations’ Human Development Index. Malaysia is No 61, or “high”).