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Rising wages 'not enough' to help poor and aging Thailand
Reuters - March 2, 2011
Jason Szep, Bangkok – Earning $6 a day from her food stall outside her home next to a railway track, Lumyai Rungruang is sceptical of news that Thailand's wages are rising. The 54-year-old is too busy contending with spiraling inflation.
Coconut juice has doubled in price. Egg prices are up 50 percent at 90 baht ($2.95) a dozen. Doubtful her income can keep pace, she bristles when pressed about her future. "I expect to work the rest of my life," the mother of five said from her makeshift stall with its corrugated iron roof and bamboo stools, where she sells rice porridge and noodles.
For the past decade, Thailand's minimum wage has trailed inflation, creating one of the widest gaps between rich and poor in Asia according to the World Bank, and fueling working-class frustrations that erupted into violent street protests last year.
But Thailand's wages are creeping up, supported by an average 6.4 percent minimum-wage increase this year, rising agricultural prices that have helped farmers, a shortage of skilled workers and a planned increase in civil-servant salaries from April.
While higher incomes could boost Prime Minister Abhisit Vejjajiva's chances at the polls this year and prod consumer spending, they raise questions over whether Thailand's economy, Southeast Asia's second-biggest, can keep its cost advantage over Asian rivals – from China to Malaysia and India.
They also highlight another troubling question facing the Thailand government and millions of workers like Lumyai: will Thailand grow old before it grows rich, as its population of 67 million people ages at one of the fastest rates in Asia?
"What I worry about is our labor market," said Atchana Waiquamdee, deputy governor of the Bank of Thailand.
"We may not be able to compete with the low-wage countries emerging every day such as Vietnam. But we need more of a middle class, otherwise we cannot avoid social problems and the struggle between the lower- and high-income classes."
Atchana said Thailand would pursue a two-tier approach to wages, keeping pay low for unskilled laborers – a pool buttressed by millions of migrants from neighboring Burma – while lifting skilled wages. "We do not have enough semi-skilled and skilled labor," Atchana said.
"I think we are going to see higher wages for these two types of labor, although the growth rate in the minimum wage may not be as high because of the supply of unskilled labor."
While unskilled workers may struggle to keep pace with living costs, those with slightly better resumes – mechanics, assembly-line workers – are in a strong position to bargain.
Unemployment is low at just 1.2 percent. Thailand, a base for automakers including General Motors, saw a shortage of as many as 100,000 manufacturing workers last year, the World Bank said.
A rise in wages complicates Thailand's efforts to reverse a decline in foreign direct investment applications, which fell 33 percent to $7.7 billion last year as protesters occupied Bangkok's streets.
Flows into neighboring Malaysia more than tripled, also threatening Thailand's cost advantage. An average factory worker in Thailand earned $263 per month, cheaper than India's $269 or Malaysia's $298 and China's $303, according to a 2010 survey by the Japan External Trade Organization. Manufacturers have plenty of options, including, increasingly, Vietnam, where the average factory wage is less than half of Thailand's at $107. Factory wages in the Philippines and Indonesia are also below those of Thailand.
Powerful forces are at work that could support wages for some time – from pressure to allay a potentially violent anti-government "red shirt" protest movement drawn from the rural and urban poor to Thailand's aging workforce.
Thailand's 46-year-old prime minister is aggressively courting low-income voters, whose frustrations helped fuel red-shirt protests last year in which 91 people were killed.
The richest 20 percent of Thailand's population earn about 55 percent of the income while the poorest fifth get 4 percent, among Asia's widest income disparities, according to the World Bank.
Abhisit, facing a close election expected mid-year, said this week he would raise the daily minimum wage by 25 percent over the next two years if his Democrat Party was elected, a break from the past when wages barely kept pace with inflation.
According to Thailand's Labor Ministry, there were only two years in the past decade when the increase in minimum wage exceeded inflation: in 2001 when inflation was 1.6 percent and the increase was 2.2 percent and 2007 when inflation was 2.3 percent and the wage rose 3.1 percent.
To win over red-shirt supporters, Abhisit, an Oxford University-educated economist, has announced a slate of populist economic policies – from subsidized oil prices via a state oil fund to more financial support for the elderly, an expansion of social security and more low-cost loans for the poor.
Similar measures helped the party of his rival, former premier Thaksin Shinawatra, win enough support in the vote-rich north and northeast of the country to become the first in Thailand's history to survive a full term and then get re-elected.
Thaksin, an ethnic-Chinese telecoms tycoon was later removed in a 2006 coup and convicted in absentia of corruption. He now lives abroad to avoid jail.
But politics are not the only factor driving wage inflation.
Bank of America Merrill Lynch economists say Thailand is at risk of becoming old before it gets rich, based on projections of per capita wealth and how fast the population is aging. That puts intense pressure on Thailand's policy makers to accelerate efforts to expand the middle class. Thailand has very little in the way of formal safety nets such as retirement pensions.
The government's 500 baht ($16) monthly stipend for the elderly, unveiled last year, is seen as far too little. Per capita income in Thailand was $8,232 in 2008 on a purchasing power parity basis, the Bank of America economists said. By 2015, that is expected to reach $11,399 – well short of Singapore's $67,061, Hong Kong's $57,963 and Taiwan's $24,759.
By 2030, Thailand, Vietnam, Malaysia, Indonesia, China and the Philippines will still not be in Asia's rich club of nations.
But Thailand and China are the only two that will be both poor and old, the economists said. Other data reinforce that view.
Gains in health services and contraception have pushed Thailand's fertility rate from a peak of 6.8 percent in 1965 to 1.8 percent – below replacement level.
Thais aged 65 or older are expected to nearly triple by 2050, the Asian Development Bank said.
But as the population ages, a Social Security Fund that provides benefits for members such as sick pay and pensions may even run dry within 40 years, according to Bank of Thailand's Monetary Policy Strategy Division.
"The pension money is not enough for Thai people," said economist Nuchjarin Panarode from Capital Nomura Securities.
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