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Minimum wage ball in Thai gov't court

Publication Date : 06-09-2012

 

With wobbling GDP growth to protect and a key election promise to deliver on, the Yingluck government now faces a major dilemma after the Central Wage Committee yesterday gave the go-ahead to the contentious plan for a nationwide increase in the daily minimum wage to 300 baht (US$9), effective in January.

The Wage Committee's decision means only a government about-face can now block full implementation of a policy that is bemoaned by business leaders and some academics as a potential source of economic calamity. Their fears were echoed yesterday, with critics of the minimum wage hike foreseeing bankruptcy for countless small and medium-scale businesses and migration of some foreign investors out of Thailand.

The Central Wage Committee yesterday resolved to implement the government's 300-baht minimum wage policy in 70 provinces starting on January 1 next year, after studies of implementation in seven provinces found the policy would not adversely affect the overall economy as feared. The 39.5-per cent increase has been in effect since April 1 in Bangkok, Nonthaburi, Samut Prakan, Samut Sakhon, Pathum Thani, Nakhon Pathom and Phuket.

Prime Minister Yingluck Shinawatra and the Cabinet will soon have to make a final decision on the nationwide expansion.

Labour Ministry permanent secretary Somkiat Chayasriwong said after the meeting that the committee upheld its decision of October 17 last year to increase the daily minimum wage to 300 baht in 70 provinces.

The 300-baht wage would remain in place until 2015.

Following the April 1 wage hike in seven provinces, the committee found that GDP had continued to rise, with the second quarter seeing 4.20-per-cent growth due to stronger purchasing power.

The hike in minimum wage had not deterred direct investment as foreign investors were seeking investment promotion for 829 projects, a 38-per-cent increase worth 330 billion baht.

The wage increase had not significantly increased the inflation rate either as over the past seven months, inflation hovered at 2.92 per cent - well below the 3.3-3.8 per cent estimated by the board.

Meanwhile, the National Statis-tics Office showed that the unemployment rate from January to June this year is lower at 0.8 per cent. The number of company lay-offs has not shown an increase, either. Of 9,098 companies that hired 350,000 workers, only 144 workers - 0.02 per cent - were laid off by two companies. While 80 per cent of SME businesses were adversely affected, 99 per cent have been able to adjust to the wage increase.

Somkiat said surveys by the Thai Chamber of Commerce and the Federation of Thai Industries pointed to the same conclusion as presented by the board.

The wage increase has helped push productivity 8.7 per cent, Somkiat said, adding the policy has stimulated companies to improve production technology and management.

The wage is expected to help bridge the income gap and distribute wealth fairly while also improving the quality of living.

The Labour Ministry has heeded suggestions from SME operators to help them adjust to the change such as suspending social security contributions, tax reduction and providing loans. They will be forwarded for Cabinet approval in December.

Manufacturers interviewed by The Nation yesterday criticised the wage hike, saying it will create serious effects not only for industry but also the country's economic growth amid a downward global economic trend caused by the US and Euro debt crises.

The immediate effects on Thailand will include increased unemployment, companies moving production out of the country, higher-than-ever production costs and even the disappearance of products as the government's price-control measures have forced manufacturers to shut down.

The government is trying hard to bolster the country's economic growth, particularly through exports. It has had to revise downward its export target from previous projections of 15 per cent to 7-9 per cent this year because of the slowing global economy.

In addition, the country's key economic agencies, including the Bank of Thailand, have already revised down the GDP growth forecast to 5.7 per cent and the National Economic and Social Development Board has forecast 5.5 to 6 per cent.

However, the wage hike could have serious domino effects, such as cost-push factor.

Manufacturers now say they will reassess the effects of the wage hike in an effort to forecast whether they will be hit harder than previously predicted.

They also emphasised that the 300 baht nationwide hike will be a drag on export growth and will cause companies' operation results to drop significantly.

The wage hike during the global economic crisis has put further pressure on exporters because they cannot adjust export prices in line with rising costs.

They suggested that the government set up a standard on wage hikes to allow manufacturers to draw up management plans and achieve competitive costs.

 

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