Construction, property, restaurants to be hardest hit by wage hike, study shows
While the Move Forward-led coalition’s manifesto aims to address income inequality and stimulate economic growth, there are concerns about their plan to increase the minimum daily wage to 450 baht.
Businesses are worried this wage hike could have an adverse impact on their operations and profitability.
Here are some details provided by Asia Plus Securities on the potential impact the wage hike will have on key industries:
The construction industry, which relies heavily on labour, will suffer a significant impact as a higher proportion of labour costs will bring down its net profit margins. Even minor changes in the wage structure can have a considerable impact on profits in this industry.
The impact on industrial estate land sales would likely be limited. Between 2010 and 2012, when the minimum daily wage was adjusted from 215 baht to 300 baht (up by 40%), the sales volume of industrial estate land was not affected because corporate income tax was also reduced. Besides, Thailand has a clear advantage in the region in terms of infrastructure and land-ownership rights, which will continue attracting investment and compensate for the impact of the wage hike.
Increasing the minimum wage to 450 baht per day will have a negative impact on the development costs of residential projects. If other costs remain the same, property developers may need to adjust their selling price by 5-10% to maintain feasible profit margins.
Tourism and Airports
Hotels may experience an impact on net profits due to labour costs, which account for approximately 25-30% of their operating expenses. However, hotels may be able to overcome this by increasing their service charges.
Airports, on the other hand, may suffer very little impact because even though employee salaries account for 32% of operating costs, they are not based on the minimum wage rate.
Energy and Petrochemical
The energy industry is not heavily reliant on labour, and employee costs are mainly in the form of salaries and bonuses. Therefore, an increase in the minimum wage will not directly affect the cost structure or performance of companies in this sector.
The 450 baht daily wage rate will have a moderate impact on the retail sector, though the proportion of employees receiving the minimum wage is relatively small compared to the total workforce. However, the increase in minimum wages will benefit the industry in the long run, as consumers’ purchasing power will increase.
Since employees account for about 50% of the operating cost, restaurants will suffer a large impact on profitability if the minimum wage rises. A 30% wage increase could bring profits down by about 12%.
The minimum wage increase will have very little impact on the operations of companies in the telecom industry. This is because employees already receive higher compensation. Besides, the industry uses artificial intelligence and automation for many tasks.
Overall, the impact of increasing the minimum daily wage to 450 baht would be limited. However, some sectors such as construction, property development and restaurants may face tough challenges in maintaining profitability.