Minimum wage increase saw poverty reduction

Krungthai Compass is optimistic about the effect

Construction workers pose on a pickup truck in Maine Buri. Natabol Lovacage

Krungthai Compass, a research unit of Krungthai Bank, expects that an increase in the minimum wage will reduce the number of poor workers, improve their incomes, and support long-term Thai economic growth at scale.

The proportion of low-income workers living below the country’s poverty line, who earn 2,726 baht per head per month under the National Economic and Social Development Board’s 2020 definition, has declined over the past 10 years, in part due to higher minimum wages.

As a result, the latest minimum wage increase will boost the incomes of poor workers and facilitate the country’s long-term economic expansion, said Chamadanai Marknwall, director of business risk and macro research at Krungthai Compass.

Last week, the Cabinet approved new increases in the minimum wage from October 1. The increase varies by geographic location, and ranges from an increase of between 8 and 22 baht per day, or between 4.5% and 6.6%.

Chamadanay said the country’s minimum wage rate saw a significant increase to 300 baht per day in 2012. The wage increase brought down the share of the labor market that was poor to 9.6% in 2014, from 12.2% in 2011.

A further increase in wages over the 2017-2018 period also reduced the proportion of people classified as poor to 5.4% in 2019, but increased to 5.8% in 2020, largely due to the impact of the pandemic.

Besides declining numbers of those living below the poverty line over the past ten years, wage increases have also reduced economic fluctuations from the precarious employment sector. With an uneven recovery now taking place, an increase in the minimum wage will help speed up the economic recovery, Chamadanay said.

Krungthai Compass expects the new minimum wage increase to raise the PPI in the range of 0.17% to 0.25% in 2022, and by 0.69% to 1.01% in 2023.

Moreover, higher wage increases are set to increase the inflation rate in the range of 0.03% to 0.04% in 2022, and by 0.13% to 0.20% in 2023. However, the minimum wage increase is not expected to affect the Thai GDP because it will lead to offsetting higher purchasing power, and will benefit private consumption.

The research house predicts that a higher minimum wage will increase employee incomes in the range of 0.36% to 0.53% per month. In addition, household consumption is expected to boost in the range of 0.27% to 0.39% this year.

Chamadanay said the recent increase in the minimum wage is reasonable and in line with rising inflation and cost of living amid the recovery of the economy. Meanwhile, the country’s labor market is gradually starting to return to normal, with the unemployment rate now approaching its pre-pandemic level.

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