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Debate Underway on Merits of Higher Minimum Wage in Thailand

Laborers carry large bags of goods while working at a market in Bangkok, January 4, 2013. Thailand's new daily minimum wage hike to 300 baht ($9.8 USD) went into effect throughout the country January 1, 2013.
Thailand has enacted a national minimum wage that mandates a daily rate of nearly $10. Although workers across the country welcomed the boost in income, some businesses have been laying off employees, complaining that they cannot afford to pay them.

A policy to raise Thailand’s national minimum wage was a key platform of the governing Pheu Thai Party of Prime Minister Yingluck Shinawatra in the lead up to general elections in 2011.

The national minimum wage marks a sharp departure from past wage policies that set lower daily rates in provincial regions against higher rates in more industrialized regions closer to the capital, Bangkok.

Since it took effect January 1, Thailand’s Labor Ministry says up to 2,500 people have been laid off.

Chiwat Withit-Thammawong, chairman of Tak Provinces’ Federation of Thai Industries in northwest Thailand, near the border with Burma, says the pay hikes have resulted in some factory closures.

Chiwat says provincial industries had to absorb an initial increase from $5.40 a day to $7.44, last year, and now to the higher rate of $9.87.

Business in Tak province largely focus on textiles and ceramics industries, with up to 80 percent of those employed women workers.

Supavud Saicheua, managing director of trading house, Patra Securities, says many women in industries such as textiles are vulnerable to unemployment - especially because of growing competition from lower-cost producers such as Cambodia. Such industries are known as “sunsets” because of their dimming job prospects.

“The sad thing is that these people know they are sunset and probably trying to restructure and trying to relocate - this [wage increase] maybe hastens their demise. But then, you have to ask yourself what if these companies are employing middle aged women who really don’t have other skills are being laid off.”

Supavud says the wage increases come as companies are still recovering from the 2011 flood and a sluggish global economy.

But political economist at Chulalongkorn University, Pasuk Phongpaichit, says wages in Thailand have long been stagnant despite gains in economic growth. Pasuk says, in the absence of a strong trade union movement, the move to raise the minimum wage is timely.

“Thailand has reached a stage where it is no longer a developing country that needs to rely on cheap labor. It needs to move itself to another level to raise the standard of living of the people. At the same time, the economy is doing quite well. So, this is a good time for the wages to rise.”

Pasuk says Thai employers have long relied on cheap labor, including drawing on immigrant labor - especially from Burma. But economic progress in Burma could lead to fewer migrant workers in the future.

A United Nations International Labor Organization report in December said Asia wages almost doubled in the decade to 2011, well ahead of the global average, largely because of higher pay rates in China.

ILO Senior Regional Wage Specialist Malte Leubker says the wage increase will lead to a restructuring of Thai industry.

“You will definitely see a structured transformation in Thailand toward more skill-intensive, higher-end manufacturers and away from tee-shirts to electronics," he added. "I would say that’s actually a sign of economic success. You are moving into those industries where more value is created."

The Thai government has staunchly defended its wage increase policy with a package of economic assistance announced by the cabinet to almost 300,000 small and medium-sized enterprises. Benefits include tax breaks and staff retraining programs. The government also hopes that higher wages could boost domestic consumption and help offset the sluggish global economy.