Thailand’s Minimum Wage Conundrum: Populist Promise or Productive Policy?

On 1 May 2024, International Labour Day, a protester sat peacefully outside Government House in Bangkok, sweltering in the mid-summer heat. Her hand-written sign said “Goods expensive. Wages cheap.” (author’s translation). Her protest captured a tension at the heart of the new Thai government’s wages policy.

In the May 2023 election campaign, the policy platform of the Pheu Thai Party, now the leading party in the coalition government, promised a doubling of the country’s legal minimum wage to 600 baht per day. It did not say when this would happen. Since the election, that promise has become an embarrassment for the new government.

In fact, the government lacks the legal power to set the minimum wage unilaterally. Thailand’s minimum wages are determined by an independent tripartite committee comprising representatives of employees, employers and officials. They do this using an established but still secret formula which emphasises the cost of living and the rate of unemployment. Both the rate of inflation and measured unemployment have been very low in recent months. Since its election, the government has tried to persuade this committee to accommodate its election promises, but without success. Pheu Thai’s Prime Minister, Sretta Thavisin, an experienced real estate executive, has found this process very different from implementing a business decision within a private company.

Before 1 January 2024, the minimum wage had ranged from 328 to 354 baht per day, depending on the province. It was then increased by an average of 2.4 per cent. On 1 May 2024, the tripartite wages committee announced a further increase to 400 baht per day, on a gradual basis beginning with 10 tourist areas and in four-star hotels, followed by nation-wide implementation in October 2024. The government has further conceded that the promised doubling to 600 baht per day would be delayed by several years, assuming the government remained in office.

Thailand’s minimum wage regulation was first enacted in 1973, when the daily minimum was set at 12 baht. Figure 1 shows the available data from 1980 to 2023, indicating that the purchasing power of Thailand’s minimum wage has increased substantially over these four decades. Consumer prices increased 2.4 times (from an index of 1 to 2.4), but minimum wages increased 6.5 times. Workers receiving the minimum wage benefited from economic growth, with their purchasing power increasing 2.7 times. Nevertheless, GDP per person increased 9.8 times. The real incomes of minimum wage recipients increased in absolute terms but declined significantly relative to the average of all Thai people.

Figure 1. Thailand’s minimum wage, CPI and GDP per capita, 1980 to 2023 (Index: 1980 = 1)

Figure 2. Minimum wages in low- and middle-income ASEAN countries

Figure 2 compares the minimum wage level of Thailand with seven other low- and middle-income ASEAN countries in 2024. The figure does this in two ways: by converting minimum wages in local currency to US dollars using official exchange rates; and by converting them at the World Bank’s latest purchasing power parity (PPP) exchange rates. The latter reflects differences in local consumer prices between countries while the former does not. Thailand’s minimum wage is not extreme. It is roughly in the middle of this group, using both measures. 

Economists tend to be ambivalent about the merits of minimum wage restrictions. On the one hand, if they are policed effectively, these provisions can protect some low-wage workers from being mistreated, as can regulations relating to workers’ health and safety. Regular revision of the minimum wage can ensure that their wages keep pace with inflation, relieving some of the anxiety understandably felt by workers like the demonstrator mentioned above. The moderate increase in the minimum wage announced on 1 May 2024 was seemingly justified, but the tripartite wages committee was surely right in declining to implement the government’s election promises.

Short-term policy interventions like the minimum wage and the ‘digital wallet’ scheme may be politically popular, but they divert attention from Thailand’s more important long-term structural problems.

If the minimum wage is set too high, low-productivity workers employed within the formal sector can lose their jobs. A recent World Bank report estimates that only 35 per cent of Thai workers are employed within the formal labour market and thus subject to minimum wage or other regulatory protections. An immediate doubling of the minimum wage was never likely, and indeed, it would have been disastrous for many of the lower-skilled workers who are Pheu Thai’s core electoral base. It would make them unemployable in the formal labour market and force them into informal employment, where minimum wages are not implemented.

When labour costs rise, businesses can mechanise, relocate to lower-wage countries, or simply close down. That is, those formal sector workers who receive the minimum wage and who retain their jobs benefit from higher wages, but those gains are partly at the expense of others, who are laid off or who might otherwise have been employed in the formal sector. The workers most likely to suffer in this way are among those least able to absorb these losses.

Therein lies the limitation of using price interventions to achieve policy goals. In this case, the price intervention is the minimum wage – a minimum price for low-productivity labour. The effects are heavily redistributive: one group gains, another loses. Price controls are nurseries for corruption because they require prices to be monitored and the controls policed. But even when they are properly implemented, they are distractions from what is most needed. They are about finding different ways to divide up the economic pie, reducing economic efficiency in the process. What is most required is to find ways to expand the size of the pie. Price interventions seldom contribute to that, and normally do the opposite.

The solution is to raise the productivity of labour. Skill levels must be upgraded. Education reform, including adult retraining, is a vital part of that process, but it takes time and is costly, not to mention politically difficult. Business efficiency must be improved by reducing red tape and public infrastructure must be continuously upgraded. Short-term policy interventions like the minimum wage and the ‘digital wallet’ scheme may be politically popular, but they divert attention from more important long-term structural problems. This is the central weakness of populist economic policy.

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