Increasing the minimum wage: Puea Thai’s first big test – Part 1By Bangkok Pundit Jul 26, 2011 9:00AM UTC
One of Puea Thai’s campaign promises was to implement a nationwide daily minimum wage of 300 Baht a day. Currently, there is no nationwide minimum wage, it is set at different levels per province (i.e higher in Phuket and Bangkok and other larger urban provinces), but lower in more rural provinces. Currently, the minimum wage is between 159 to 221 Baht a day. This slightly out-dated BOI chart has minimum wage per province at beginning of 2010 which though does give you an indication of where provinces are.
Should the minimum wage rate be increased?
First, some background about the minimum wage in Thailand. Reuters Bureau Chief Jason Szep had an interesting analytical piece article a few months back:
For the past decade, Thailand’s minimum wage has trailed inflation, creating one of the widest gaps between rich and poor in Asia according to the World Bank, and fuelling working-class frustrations that erupted into violent street protests last year.
But Thai wages are creeping up, supported by an average 6.4 percent minimum-wage increase this year…
According to Thailand’s Labour Ministry, there were only two years in the past decade when the increase in minimum wage exceeded inflation: in 2001 when inflation was 1.6 percent and the increase was 2.2 percent and 2007 when inflation was 2.3 percent and the wage rose 3.1 percent.
The Nation has some more details over how the minimum wage has trailed inflation in the late 90s:
For example, inflation was 5.6 per cent in 1997 and there was no increase in the minimum daily wage; the rate was 8.1 per cent the next year, which saw a wage hike of 1.8 per cent. There were no minimum-wage increases in 1999 or 2000, which saw inflation of 0.3 and 1.6 per cent respectively.
Bloomberg has the result:
The country’s average daily minimum wage increased by 25 percent over the past decade to 206 baht ($6.73) from 165 baht, according to data compiled by Bloomberg.
BP: Although, a pro-Thaksin party was in power for half that time so it is not as though may want to reflect as to why the low increase in wages then again. After having typed the above, BP found the below chart which shows you minimum wage versus inflation for 1997-2009:
Source: Bangkok Post
btw, when they say that 2.9 and 3% in 2005, doesn’t that mean around 5.9%- actually just under 6% so increase was more than inflation? Right?
However, this slowing down of the increase of the minimum wage has not always been the case. This TDRI PDF file shows the increase in the minimum wage from 1973 to 2003. Below is information summarized from TDRI:
In 1973, it was 12 baht a day. By 1978, it varied between 25-35 baht a day. By 1983, it varied between 56-66 baht a day. By 1988, it varied between 61-73 baht a day. By 1993, it varied between 102-125 baht a day. By 1998, it varied between 130-162 baht a day. By 2003, it varied between 133-169 baht a day.
BP: In the past 14 years, the minimum wage has stagnated and has not kept place with inflation like in the past.
btw, would be interested if anyone has been able to plot minimum wage increases on a chart with inflation increase….
Actually, the Democrats also agreed to raise the minimum wage. While the Democrats campaigned on raising the minimum wage by 25% over two years, this was actually a significant backdown from Abhisit’s proposal last year for a nationwide 250 Baht a day minimum wage, which was approved by Cabinet, but which was later abandoned. Basically, the idea of a significant increase the minimum wage has broad support – one of Puea Thai’s coalition partners campaigned on 350 Baht a day. This is best summed up by then Finance Minister Korn in a speech in Korea as reported by the Bangkok Post last year:
Corporate income tax revenues have doubled since the 1998 crisis, he said, while minimum wages have fallen when adjusted for inflation.
One course for the country may be in a new economic model based on tourism or auto clusters. This will help diversify the economy and narrow the income gap, he said.
“In the export sector, only the [company] owners or shareholders benefit from the earnings, while employees earn [minimum] wages,” Mr Korn said.
“Yes, low wages are one key factor why foreign companies invest in Thailand. But in the end, low wages also contribute to the income gap.“
Then, also in an interview with the Sydney Morning Herald last year:
So Thailand’s Finance Minister, Korn Chatikavanij, has come up with a very big idea, albeit a simple one – raise workers’ salaries. ”What’s the cost to the country to significantly increase this minimum wage?” he posits during our recent interview.
Those people most likely to oppose Korn’s suggestion are his own supporters. Korn is a senior figure in Thailand’s oldest political party, the Democrats, whose heartland is Bangkok’s conservative business elite. Many of their number are rich and yellow-inclined, regarding their privilege as a birthright endorsed by the semi-divine monarchy.
Now, he says: ”Maybe we’ve been conned all this time here by employers as regards our minimum wage, which we all know to be low but have been told is necessary.”
He has shown particular interest in the Foxconn crisis in southern China. Several workers at the Taiwanese-owned factory that produces for Apple, Hewlett-Packard and Microsoft committed suicide and the company is fending off claims of abusive work practices. Korn says he sees a lesson in the company’s reaction to the deaths.
”The most significant thing about the Foxconn matter was that overnight the owner was able to double salaries. That means he could afford to do it,” he says.
As for the cost to business of higher wages, Korn says: ”I would reduce their tax, that’s the quid pro quo, and then I pick it up through higher consumption. But I need to do more work on how this would impact on costs and competitiveness.”
Korn’s thinking betrays not just his own government’s immediate dilemma but a longer-term Asian leadership conundrum – how to confront unexpected political and economic challenges as working-class aspirations and education rise.
”I’m thinking, what’s the cost to the country to significantly increase this minimum wage, by order of the Ministry of Labour? If there’s a time to do it, it is now.‘
BP: The main difference now is how significant the increase should be and how quickly.
In a later post, BP will look at some of the pushback from business, the implications of minimum wage increase, Puea Thai statements post-election, and possible problems ahead.
btw, was Korn’s establishment membership cancelled after that interview? :)