A sustainable solution to ease the income gap requires better accessibility to public services and education, rather than subsidies, Siam Commercial Bank's Economic Intelligence Unit said.
The bank's research, completed recently for full revelation at the bank's annual conference on Friday, showed that Thailand's poverty has eased slightly thanks to the economic growth. If the poverty line is set at US$2 per day, the number of Thais living in poverty accounted for 12 per cent in 2004 from 26 per cent in 1992.
"The income gap is apparent when we look at the average income of Thais in different regions," said the bank's chief economist, Sethaput Suthiwart-Narueput.
The research showed that after the 1997 financial crisis, the average income also grew at a slower pace. While the rate during 1990-1994 was 8 per cent, it slowed to 5 per cent during 2002-2007. Much of the income went to the top 20 per cent in the income scale. The top 20 per cent of the population earned 55 per cent of the national income, while the 20 per cent population in the bottom earned totally 4 per cent. SCB's EIU noted that the inequality level is striking even when compared with other countries in Southeast Asia.
It also showed that farmers in the Northeast earned the lowest household income, while entrepreneurs in Bangkok earned the highest household income. The gap is as high as 12 times.
Considering the average income by profession, farmers earn the lowest, followed by construction workers, factory workers and those in the service sector. People in the Northeast, no matter what profession they are in, earn a lower income than their peers living in other regions. On average, they earned only 60 per cent of income enjoyed by their peers in Bangkok.
"There is no way that their income growth would catch up with those of people with special skills and entrepreneurs, unless they are equipped with higher education or funding. Yet, the accessibility to that is not evenly distributed," Sethaput said.
While they lack the opportunity to catch up with high-income earners, figures during 1990-2007 showed that the income gap actually widened. In 1990, the income of entrepreneurs in Bangkok was two times higher than that of factory workers in Bangkok and over 10 times higher than farmers in the Northeast. In 2007, the gap widened to 3 and 12 times, respectively.
During the period, farmers in the Northeast witnessed an increase in income simply by changing career or relocating to other provinces; for instance, becoming a construction worker in Bangkok. In that case, they saw their income double. And if the workers can increase their skills and become factory workers, the income would further rise by 30 per cent.
However, they need higher education, higher skills or funds if they want to catch up with those in the specialised area and entrepreneurs in Bangkok whose incomes are 9 and 12 times higher. There is only a slim chance of this happening and the negative impact will pass on to their children who could not afford higher education.
Workers in the Northeast saved Bt12,000 per year on average, but the tuition fees for the vocational and undergraduate levels were Bt15,000 and Bt35,000 per head per year, respectively.
To date, accessibility to education is uneven. Among the top 20 per cent population, the rate in obtaining vocational and bachelor degrees is 10 times higher than that of the 20 per cent population in the bottom level.
The income of young workers with vocational or bachelor degrees was twice that of those in the same age who entered the labour market with just primary school education. When these people approached the retirement age, the gap widened to 5 times.
"Income inequality is not new. We have lived with it for such a long time. This demonstrates that we can no longer afford to solve it with conventional methods. The government should make serious efforts to address the inequality, to offer them an opportunity to earn more," Sethaput said. He noted that income distribution through subsidies will not help, as it is a decentralised method. Moreover, it is a zero-sum game, whereby when one gains more, the other loses more.
He noted that the government should emphasise on better accessibility to public services and education. For sustainability, these should be done in a transparent manner with participation from the public.
The research also found that Thailand's wealth distribution is in a poor state. If bank deposits - the most popular saving method in Thailand - are used as an indicator, it showed that 89 per cent of the total 77 million accounts own only 4 per cent of total deposits of Bt7.3 trillion. Worse, only 1 per cent of the accounts owned 72 per cent of deposits.
The SCB annual conference on the economy titled: "Thailand: Tougher Challenges, Bigger Opportunities", will also feature a seminar on Thailand's opportunities in the long term and the private sector's role, in addition to the economic and financial market outlook in 2011.