Labour shift to low-output sectors may need addressing

Thailand is bracing for a structural change in the labour market after the misallocation of workers into low-productivity areas, says a Bank of Thailand research paper.

The paper, one of six to be presented at the annual BOT Symposium on September 19-20, aims to find structural hindrances to the efficiency of the labour market mechanism, which may call for a new set of policies.

The two authors of the paper, both economists, showed that there had been a flow of workers from the industrial sector (which is considered a high-productivity area) to the service sector, particularly ventures that provide low-value-added services. The low-value service sector now employs 30 per cent of the workforce. 

Before the 1997 financial crisis, the Thai labour market underwent a structural change that boosted productivity by 43 per cent from 1991 to 1996 and raised workers’ pay accordingly. However, this competitiveness has been diminishing. Despite higher education levels, productivity during 2006-2012 increased by only 5 per cent, resulting in low pay increases. 

The market underwent three major periods of change: first, during the Asian financial crisis; second, during the US-triggered sub-prime crisis that hit the Thai economy hard in 2009; and third, during the flood disaster in 2011. 

The quantitative research showed that the market was highly efficient in managing labour surpluses, in light of external factors. However, the overall mechanism still shows some weaknesses, reflecting in the low pay increases and slow increase in productivity, despite the low unemployment rate. 

The low productivity “raises a question on the worthiness of education financing – both by the government sector and by [workers’] own families”.

Thailand’s unemployment rate remains at a very low level. In the third quarter of 2012, it was only 0.6 per cent.

Meanwhile, more workers – particularly those with primary-level degrees – are moving out of the industrial sector to the agricultural sector. The increases in crop prices have encouraged the transfer. 

Under this circumstance, effective average pay has moved up slightly after a sharp drop as a result of the 1997 financial crisis. The average pay returned to the pre-crisis level in 2011 and exceeded that level last year, largely because of the implementation of the Bt300 daily minimum wage in seven pilot provinces.