The effects of low skill immigration on the Thai labour market
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There is widespread belief in Thailand that low-skilled migrant workers take away the jobs and depress the wages of local workers because they are willing to accept less pay for the same work.
Evidence of this belief is shown in an opinion survey conducted in late 2010 by the International Labour Organisation (ILO) Triangle Project on public attitudes towards migration and migrant workers. The survey found an alarming 89 per cent of the respondents agreeing that “Government policies to admit migrants should be more restrictive,” and only 40 per cent believing that migrant workers make a net contribution to the economy. An earlier study in 2006 conducted by Assumption University commissioned by ILO/United Nations Development Fund for Women (UNIFEM) found most respondents did not believe that Thailand needs migrant workers to sustain its industrial and agricultural economy.
Do facts on the ground support these perceptions? Recent empirical evidence show them to be misperceptions. Opposition to the presence of migrant workers was likely fuelled by concern over the sharp increase in the number of migrant workers, which nearly doubled from 2004 to 2007. As of 2007, immigrants represented around 5 per cent of the country’s workforce of 36 million. Most of them come from the Greater Mekong sub-region, with some 75 per cent from Burma and 12 per cent each from Cambodia and Laos. They are largely young and low-skilled, around three quarters of whom are unregistered or undocumented.
The presence of an increasing number of migrant workers – documented or undocumented – in key industries like construction, agriculture and fisheries indicate either a shortage of such workers locally, or cheaper foreign labour, or both. It also suggests that migrant workers benefit these industries and the economy on the whole. Martin (2007) and more recently Pholphirul, Rukumnuaykit and Kamlai (2010) estimate the contribution of migrant workers to Thailand’s real GDP to be in the range of 0.75 to 1.25 per cent per annum. Given that the migrant workers constitute only 5 per cent of the country’s workforce; their disproportionately low contribution to GDP reflects their lopsided presence in low-productivity industries.
It is common knowledge that the Thai economy is characterised by the coexistence of a capital-intensive formal sector and a large labour-intensive informal sector, which employs mostly low-skilled and temporary workers who are paid lower wages without fringe benefits or job security. The rapid increase in educational attainment of the Thai labour force means that younger Thais are turning away from the so-called “3D” jobs (dirty, dangerous and demeaning). The growing void has been filled by foreign workers, most of whom have less than a lower primary education (fewer than four years of formal schooling).
From my recent estimate, the surge of migrants over the three-year period from 2004 to 2007 contributed only around 0.07 percentage point to the unemployment rate of 0.66 per cent observed in 2007 among the primary and less-educated labour group. Putting it in another way, had the proportion of migrant labour remained at the 2005 level of 2.86 per cent, the unemployment rate for the group would likely have been at 0.59 per cent in 2007. Evidence thus shows that the migrants had minimal impact on the loss of jobs among the least-skilled native workers.
To find out the impact of immigration on the Thai wage structure, I simulated a 100-per-cent increase in the share of migrant workers in the labour force to mimic actual inflows observed from 2001 to 2007. Consistent with other previous studies, I find a small negative impact of 0.69 per cent on the average wages of native workers with at most a primary education. By comparison, the wage effect of new migrants on existing migrant workers is much larger (-2.04 per cent). However, because of their complementarity in production, the inflow of low-skilled immigrants are found to raise productivity, and hence average hourly wages of native workers with a high school and a college education by 0.56 and 0.57 per cent respectively. Due to the larger share (57.5 per cent) of high school- and college-educated workers in the Thai labour force and the higher wages commanded relative to the less-educated groups, it is clear that there is a net gain in native wages from immigration.
In short, recent empirical evidence shows that the low-skilled immigrants employed by industries contribute to the Thai economy. Labour intensive industries have become increasingly dependent on migrant workers as a new generation of Thais constantly move up the skills ladder to take on better paying jobs. While the migrant workers may cause some loss of employment among the least skilled Thai workers, the tightening labour market at the low end of the skill distribution acts to keep these to a minimum. Also, the complementarity effects of foreign workers on the labour productivity of our high school and college workforce far outweigh any adverse effects on the wages of our own low-skilled workers.
References
Bryant, J. and Rukumnuaykit, P. (2007): “Labour migration in the greater Mekong sub-region: Does In-migration to Thailand Reduce the Wages of Thai Workers?,” The World Bank, Bangkok
Kulkolkarn, K. and Potipiti, T. (2007): “Migration, wages and unemployment in Thailand”, Chulalongkorn Journal of Economics, 19(1): 1-22.
Lathapipat, D. (2010): “The Effects of Immigration on the Thai Wage Structure”, Thailand Development Research Institute, Bangkok.
Martin, P. (2007): “The Contribution of Migrants Workers to Thailand: Towards Policy Development”, ILO, Bangkok.
Pholphirul, P.; Rukumnuaykit, P. and Kamlai, J. (2010) “Do immigrants improve Thailand’s competitiveness”, paper presented at the World Bank and IPS Conference on Cross-Border Labour Mobility and Development in the East Asia and Pacific Region, 1-2 June 2010, Singapore.
Dilaka Lathapipat, PhD
Thailand Development Research Institute (TDRI)
Email [email protected]
