TDRI calls for rise in overall productivity

Economy January 30, 2013 00:00


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The government and the private sector should focus on enhancing overall productivity rather than of labour alone to mitigate the negative impacts of the blanket Bt300 daily minimum wage, says the Thailand Development Research Institute's Chettha Intharaw

The researcher’s economic model shows that if total productivity rose by only 0.612 per cent, gross domestic product would not be affected by the wage increase. Other negative impacts on public and private consumption would also be mitigated. To achieve this, business operators should be encouraged to increase the efficiency of their entire operations – machinery, labour, transport and logistics, and information technology.

“Increasing labour productivity is harder than enhancing overall productivity. Thus policy-makers should focus more on overall productivity,” Chettha said in the research.

His model produces three scenarios for impacts from the wage increase. The figures above are from Scenario 2.

Under Scenario 1 – when wages rise without any increase in productivity in any area – GDP could be shaved by 2.6 per cent. Private consumption, investment and export would shrink by 2.5 per cent, while public consumption would drop 4 per cent. Employment of unskilled labour may drop by 14 per cent, affecting about 1 million workers.

The export sector would suffer from a 2.35-per-cent drop in sales, particularly those in the textile, garment, leatherware and furniture industries. The model shows that the export of high-technology products such as automobiles, electrical goods and machinery would also drop, but on a slight scale.

In the third scenario – with increases in both wages and labour productivity – workers’ output in all manufacturing sectors would have to be increased by 8.4 per cent to avoid any negative repercussions on the economy.

His model shows that the higher wage will increase the income of labourers by 11.24 per cent on average, with particularly unskilled workers benefiting the most.

The wage increase, implemented in seven key provinces last April, came into effect in the remaining 70 provinces on January 1 and led to complaints, particularly from small and medium-sized enterprises.

To address the negative impacts on business operators, the Cabinet yesterday approved the establishment of a committee to study and provide relief measures for SMEs and approved a cut in employers’ contribution to the Social Security Fund from 1.5 per cent of salary to 0.5 per cent for a one-year period.

Prime Minister’s Office spokesman Tossaporn Serirak said that under a proposal by the National Economic and Social Development Board, the committee would also be in charge of measures to mitigate impacts from such other factors as the euro-zone crisis and appreciation of the baht.

With 30 members, the committee will be chaired by PM’s Office Minister Nivatthamrong Boonsongpaisal, with Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong as an adviser. Other members will represent state agencies and banks.

If the committee decides to help businesses cope with the new minimum wage with financial aid, this would come from the central government budget until their productivity is raised and they are able to get bank loans. Solutions could be business restructuring, expansion of marketing channels and lower production costs.

Industry Minister Prasert Boonchaisuk said his ministry was preparing measures to help small and medium-sized enterprises hurt by the wage increase. They include an industry clinic to advise SMEs and a subsidy of about 3 per cent for the first year of loans needed to improve their cash flow.

The ministry will also set up a tax-incentive programme for machinery upgrades.

The budget for the measures will be about Bt2 billion. If that proves not to be enough, the Cabinet will be asked for more, Prasert said.