Nationwide wage hike may worsen plight of the poor

From January 1 next year, every Thai worker will be entitled to the Bt300 daily minimum wage. This follows the government earlier this year approving the new minimum wage in seven provinces. The controversial wage increase is a result of the Pheu Thai Party’s attempt to “out-promise” the Democrat Party during the election campaign last year. The Democrats promised a minimum-wage rise of 20 per cent in incremental steps. Pheu Thai upstaged them by promising the wage level would rise by 40 per cent, to Bt300. 

This election pledge does not reflect or respond to real market conditions. First, the sudden rise could lead to uncontrollable price hikes. Second, the government says the new wage level marks an advanced rate increase that will be fixed for the next two years, regardless of what happens as a result of the unpredictable economic situation.

Now that the government has decided to go ahead with the wage rise nationwide, workers and business operators have no choice but to improve productivity and skills. The wage hike will be a test for the whole of Thai business. Operators will have to improve cost management while workers will have to show they have the skills to merit continued employment – and the higher wage.

The Labour Ministry claims that the impact of the wage increase in seven provinces was manageable. It said inflation in the first seven months of this year was 2.92 per cent, compared to a projection of more than 3 per cent. The ministry claims that more than 90 per cent of the affected business operators so far have been able to adjust to the wage hike.

However, the initial wage hike does not reflect the entire picture. The new rate will be mandatory in provinces where the market rate is lower. In addition, big corporations in the initial seven provinces have not complained so far partly because they received assistance from the government, in the form of corporate tax cuts. This has helped them defray some of the extra cost, but many small and medium-sized companies are not qualified for such tax benefits.

A previous survey showed that new employees benefited most from the wage hike, while veterans whose income was already above Bt300 per day saw no rise in their earnings rise in proportion with the higher minimum wage. 

A recent survey by the Thai Chamber of Commerce showed that about 7 per cent of SMEs have closed this year because of higher labour costs. The chamber also noted that the unemployment rate rose from 0.7 per cent before April to 1.1 per cent now. It claims unemployment will rise even further if the government persists with its wage policy.

Industries that are labour-intensive, such as textiles and furniture, are likely to be the ones most affected by the wage hike. 

The wage rise alone is expected to increase production costs by 15 per cent, but according to Professor Narong Phetprasert, the increase is also likely to have a psychological impact on the market and push up overall prices. Workers who depend on the minimum wage could end up finding they have less money in their pockets because the cost of living will soar in tandem. 

Now that the policy is unlikely to be reversed – because it’s what the Yingluck government promised to voters – everyone will be under pressure to work harder to prove themselves. While the government has insisted on going ahead with the wage rise, it must now think of ways to restructure the labour force and provide people with the necessary skills needed to increase their bargaining power. 

At the same time, it will have to reconsider its strategy for economic development without leaving a majority of workers dependent on the minimum wage because they don’t have the skills to bargain for rates that are commensurate with their abilities. Otherwise the wage hike will not serve its purpose of correcting the vast and growing gap between the haves and the have-nots.