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Hiking minimum wage ‘could erode competitiveness’

May 05. 2019
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LEADING economists and manufacturers have warned that an increase in the minimum daily wage, as pledged by major political parties in the run-up to the general election in March in response to calls from labour groups, will dampen the competitiveness of the Thai economy.

In a race to woo voters with populist policies ahead of the March 24 poll, major parties, including Palang Pracharat and Pheu Thai, dangled the promise of raising the minimum daily wage by up to 26.5 per cent to Bt400, from an average of Bt315.97.

In a survey of 1,160 workers on the issue in Bangkok and its neighbouring provinces, the Bangkok University Research Centre found that 49.5 per cent admit to being influenced by the prospects of a rise in daily wage when casting their ballot while 50.5 per cent said otherwise. 

In regard to the timeframe, 43 per cent hoped for an immediate hike to a flat-rate of Bt400 daily, 15.3 per cent said it should be gradually raised within 1-2 years while 3.4 per cent hoped it would be implemented in a three-year span. Of those polled, 38.3 per cent did not suggest a timeframe.

“As prices have been rising, there should also be an increase in wage,” said Pimchanok Vonkorpon, director-general of the Commerce Ministry’s Trade Policy and Strategy Office.

However, instead of a hike to a flat rate of Bt400, as pledged by the political parties, it should vary, taking into consideration the labour markets in each region of the country, she said. 

“Nowadays, less Thai workers rely on the minimum wage for their livelihood, as opposed to the large number of immigrant labourers residing in the country,” she added.

Tim Leelahaphan, an economist for Standard Chartered Bank concurred with the director-general, saying: “If the minimum wage is hiked as promised by the political parties, the real winners in this scenario will be the immigrant workers as most of them still rely on the minimum wage.”

Furthermore, the operation costs for businesses, particularly small and medium-sized enterprises, would rise significantly. They would struggle to survive and grow, the economist said.

A substantial rise in labour cost would likely lead to manufacturers striving to lower operational expenses. Workers may be made redundant, as companies look to replace them with automation, he cautioned.

The Federation of Thai Industries (FTI) has also expressed concerns about the possibility of a rise in minimum daily wage when the next government take office. 

“Increasing the minimum wage will increase the cost for businesses, making them less competitive,” said FTI vice chairman Kriengkrai Thiennukul. 

It may trigger a mass relocation of Thai-based manufacturers to the CLMV (Cambodia, Laos, Myanmar, Vietnam) region for lower cost, while unemployment in the country will rise as companies replace workers with technology. As such, low-income earners meant to benefit from the populist policy, may actually end up losing, Kriengkrai said. 

The private sector has instead, suggested that the government promote the upskilling of Thai workers. The process will create more value to the economy, make workers more productive, and increase their income. 

“The government could encourage private businesses to ‘pay by skill’, which will prevent layoffs and allow some workers to be paid well above the minimum wage,” suggested FTI chairman Supant Mongkolsuthree.

The best way to boost workers’ income could be achieved through value-addition to a company’s products and higher efficiency of the workforce, said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank’s Economic Intelligence Centre.

“This will take some time. However, I believe it is the most effective way to increase the income of Thai workers and develop the capabilities of Thai businesses in the long-term,” he stated. 

Yunyong called for a holistic and detailed action plan by the new government in support of small and medium enterprises and develop the skills of Thai workforce. The action plan should be seriously implemented with its effectiveness properly assessed, he said.


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