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New wage could raise unemployment to 1.1-1.3%

Sep 07. 2012
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By The Nation

Unemployment could rise to 1.1-1.3 per cent next year when minimum wage hike takes effect nationwide and hurt small business operators, Siam Commercial Bank predicts.


Unemployment is now 0.8 per cent.
Enforced in 7 provinces in April, the Bt300 minimum wage would be enforced in the remaining 70 provinces on January 1, 2013.
Yet, the bank's Economic Intelligence Centre said that the higher wage would force businesses to increase productivity and this would ease the tight labour market. 
"Still, this is not an easy task, as SMEs have their own limitations. Plus, they would be the hardest hit as only few can take advantage of a corporate tax cut. The government should come up with special programmes to help them enhance productivity, which could include a soft loan for machinery purchases or tax incentives for training courses," the bank said. 
The bank noted that despite the increase in joblessness, the ratio is low compared to other countries. This is due to tight labou market. Despite high economic growth in the past decade, labour productivity grew at the half pace of economic growth, indicating slow improvement in the production. Meanwhile, as the real minimum wage has crept up slowly, young workers are discouraged to improve their skills and some opt out from the labour market. This leads to the shortage of skilled and unskilled workers. 
"In the long term, the wage hike could lead to higher productivity and ease the tight labour market, which could get worse as some foreign workers return home while many Thai workers age," it said. 
 Businesses in near-Bangkok provinces like Chachoengsao, Saraburi, Ayutthaya and Chon Buri and Rayong would be least affected, as their current minimum wage is as high as Bt264-Bt273. Those in the Phayao, Si Sa Ket, Nan, Tak and Suri would be hit the hardest, as they will have to raise the wage sharply from Bt222-Bt226 now. 
SCB said that the wage hike would push up the average production cost by 7 per cent on average. Those in construction, food and drink, textile, garment and agriculture would shoulder the highest increase, by 8-10 per cent. Yet, the increasing cost depends on their ability to enhance productivity and transfer the cost to consumers.  
  It said that as some businesses, which could not raise productivity or use machinery to replace labour, would shut down business, more workers would turn to the agricultural sector. This would further boost the size of Thailand's informal economy from 57 per cent of GDP. Many businesses in the sector bank on a few workers who are not entitled to any welfare. The informal sector now employs 40 per cent of workforce. 


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