Can Thai govt force private sector to pay higher minimum wage?By Bangkok Pundit Sep 12, 2011 10:00AM UTC
The Bangkok Post on September 11:
Commerce Minister Kittiratt Na-Ranong yesterday admitted the government could not force private employers to comply with an increase to the minimum wage.
Mr Kittiratt said the government wanted to deliver on its campaign promise to raise the daily minimum wage for unskilled workers to 300 baht. However, he said the government could not force all private employers to comply.
“If the employers say they can’t do it [raising the minimum wage], then the government can’t move forward,” Mr Kittiratt said during a seminar on the government’s economic policies held by the Economic Reporters Association at Thammasat University.
However, the government would encourage major companies that are ready to pay their workers 300 baht a day to do so immediately, he said.
The Bangkok Post in an editorial on September 12:
There was nothing more attention-grabbing and little as important in the Pheu Thai Party’s election campaign than the promise to raise the minimum daily wage to 300 baht. It was disappointing and somewhat disconcerting then that Commerce Minister Kittiratt Na-Ranong suddenly discovered on the weekend that the government actually cannot order such an act. His statement that authorities including the government have no power to mandate a minimum wage was certainly surprising. No one has questioned the power to set a wage standard. But it is troubling at best to hear Mr Kittiratt intimate that if a company refused to raise salaries to a set standard, nothing would happen.
The Bangkok Post on September 3 translating a Thai Rath article where they interviewed Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong. Key excerpts below (emphasis in italics):
[Q] Is it certain that the 300 baht minimum wage will be enforced on Jan 1 next year?
[A] It can begin before that. Let’s talk about the implementation steps. If the government issues an instruction through the tripartite committee to enforce the 300 baht minimum wage nationwide and employers don’t want to pay, then unemployment results, making the policy ineffective. The government wants people to have jobs as well as higher wages. The government, as the biggest employer, knows that some government workers earn less than 300 baht a day. This can be easily fixed.
[Q] What will happen if the private sector does not follow the wage and salary hike in the government sector?
[A] I have met Dhanin Chearavanont, chairman of the CP Group, who says that even if the government does not implement the pay rises, he will go ahead anyway. Mr Dhanin says it could cost the group about 1 billion baht. He says he believes workers should be paid more to cope with high prices.
I have also received word from the Bangchak oil refinery, another big employer, that even petrol station hands will get 300 baht a day. I believe other companies will follow their lead.
Pheu Thai campaigned for a 300 baht minimum wage throughout the country. Now you say it will start in the state sector, and in Bangkok first. The rest must wait for the tripartite committee’s resolution.
Any government worker in Bangkok, Mae Hong Son or Krabi will get 300 baht when the revised budget comes into force.
Any 7-11 worker will get 300 baht because CP cooperates with the government.
[Q] It seems the 300 baht minimum wage policy is not binding or compulsory, but the government is asking the private sector to cooperate?
[A] We are not pressuring them, but trying to persuade the private sector to pay.
[Q ??] Pheu Thai campaigned for a uniform 300 baht minimum wage policy. Now it seems you won’t be able to deliver.
It is easy to implement the wage rise through the tripartite committee because the government has the votes of employee representatives. In the past, the government always sided with the employers. It is easy now to side with employees. But will it really be good for the country?
Several SMEs are protesting against the 300 baht minimum wage.
BP: Without changing the law, the government on its own cannot force employers to increase the minimum wage, but the tripartite committee can.
In Thailand, the minimum wage is legally enforceable and determined by a tripartite committee, consisting of government, employer and employee representatives.
NOTE: Minimum wages in Thailand are set by a tripartite committee of 15 members — five representing workers, five for employers and five Labour Ministry officials. Yingluck can push through her wage increase if the employee representatives and the ministry officials outvote the employer representatives.
BP: If you read the full interview, you can see what the Commerce Minister is saying. The government wants to persuade the private sector to get them to cooperate. This seems to be the message he wants to convey to companies although he does note the government can through the tripartite committee can force the private sector to increase the minimum wage. Hence, the Commerce Minister has been meeting with Federation of Thai Industries to work out a deal. The Bangkok Post on August 19:
Mr Kittiratt held informal talks on the issue yesterday with the joint standing committee on commerce, industry and banking. He was joined by Finance Minister Thirachai Phuvanatnaranubala and Labour Minister Padermchai Sasomsap.
Nonetheless, Payungsak Chartsutthipol, the chairman of the Federation of Thai Industries (FTI), reiterated hopes that the government would gradually raise the minimum wage to 300 baht over three years and not do so all at once.
“Actually, business operators want a four-year period, but I think three is appropriate to have everything in place,” he said, adding that the decision on the wage hike should rest with the tripartite committee, consisting of civil servants, businesspeople and labour representatives, to better reflect the market mechanism.
BP: So it is not complete opposition, but just a more delayed implementation. Even just after the election there was talk of a gradual implementation and while the Commerce Minister is talking about persuasion, the Labour Minister is pushing forward. The Nation on September 1:
Labour Minister Padermchai Sasomsap said the party’s hallmark policy would be implemented first in Bangkok, Samut Prakan, Samut Sakhon, Pathum Thani, Nakhon Pathom, Nonthaburi and Phuket.
More than three million workers are expected to benefit.
Somkiat Chayasriwong, permanent secretary of the ministry, said the plan was possible because the current wage rate in those provinces is now quite close to Bt300, so employers should not be too bothered.
In Phuket it is Bt221 and in the other provinces Bt215.
All parties must discuss the issue with the Central Wage Committee [BP: This is the tripartite committee] in the middle of the month before coming to any conclusion, he said.
“I think things should become clear by October. We hope to see the new wage take effect on January 1,” he said.
The minimum wage in other provinces may rise by 40 per cent first and to Bt300 later, he added.
From the Ministry of Labour website regarding a statement made on September 5:
Mr. Padermchai Sasomsab, Minister of Labour, delivered a lecture on “the government’s policy on minimum wage and labour” to the audiences, saying that the government’s 300-baht minimum daily wage policy is intended to guarantee workers of all kinds including home workers and agriculturalists to have an income of no less than 300 baht a day, excluding overtime payment. He said the policy will be first implemented in pilot provinces which are most qualified to receive the wage hike, expecting to be implemented in 2012, noting that in other provinces, wage bases must gradually be adjusted upward first before the policy can be fully implemented. Mr. Padermchai also said that wage adjustment must be acceptable for both employers and employees; workers who benefit from the policy must work harder and more efficiently.
BP: The Ministry of Labour website also quotes the Minister referring to a 40% increase nationwide which is how you get to 7 provinces getting 300 Baht a month first and the other 70 getting a 40% increase although he refers to the government’s new terminology of income and not minimum wage.
Depending on how quickly the government wants to push the issue, the September 14 meeting may not come to a conclusion and there could be another meeting after this while negotiations are undertaken and more compensation, particularly for small and medium enterprises, is worked out. But as the Permanent Secretary states it is likely to be settled by October as the government will not want it to drag on for too long. This is a gradual implementation, but it is somewhat faster than many in the business community want. Nevertheless, the strength of the opposition will also depend on what compensation is offered in return. Many big companies will not be that greatly affected and from what BP understands tacitly support the policy because once the corporate tax reduction (from 30% to 23% in 2012 and then to 20% in 2013) is taken into account, they will take a short-term hit, but will gain more in the long-term.
However, the compensation for small and medium enterprises is unclear and this is where the government will face the greatest pressure. Reuters:
Smaller firms account for about 78 percent of total employment and contribute 37 percent to GDP, according to the Office of Small and Medium Enterprises Promotion.
BP: What will the government offer such businesses? When will the 300 Baht a month be finally implemented nationwide? (ie. what percentage increase next year for the 70 provinces? Enough to increase to 300 Baht or will it be 2014?). Will workers in the 70 provinces be satisfied with an up to 40% increase and not immediately to 300 Baht? What allowances* will be taken into account in the inclusion of income? For the private sector, this later question more relates to bigger companies where employees receive food and transport allowances.
Finally, there is the issue of employees groups and the Thai Labour Solidarity Committee and has threatened to sue although, will employee representatives refuse to vote for a 40% pay increase in the minimum wage? That seems unlikely given the small increases over the past 15 years with the government representatives siding with employer representatives.
*For many multinationals, bonuses of 2-3 months is not uncommon. Bonuses will likely not be included as allowances as they are not paid daily or calculated daily. Hence, for some companies, if profits are down, bonuses may also be down…. Together with the changing of wording from minimum wage to minimum income, this means most multinationals are unlikely to face many problems as they will already pay close to/if not more the minimum wage now.
btw, BP has already done a direct comparison with Thailand’s competitors over the minimum wage, but mistakenly did not point out one other important point. For businesses, it is not the just the money that an employer pays to the employee that is relevant for an employer, it is the total cost of employment. For example, social security and other compulsory payments that a company must pay where in Thailand the % of wages is quite low:
Source: JETRO – 2010 – page 110 (PDF)