Thailand: Would Raising Minimum Wages Help The Poor?


Professor Peter G. Warr

Raising minimum wages is sometimes advocated as a means of assisting poor people. Suggestions of this kind are being made in Thailand at the moment, reflecting the economic hardship induced by the crisis and the search for means of relieving it. But would raising minimum wages actually help the poor?

Data from the Labour Force Survey indicate that the minimum wage or higher was received by 70 per cent of the labour force, as covered by the survey. Wages below the minimum were received by 30 per cent of this workforce. It is clear that minimum wage laws are not fully enforced in Thailand. Increasing minimum wages could have no effect on the incomes of workers already receiving less than the minimum. For workers who do receive the minimum it could have either of two kinds of effects. First, for those who retain their jobs and who actually receive the newly-raised minimum, incomes will increase. Second, for those who lose their jobs, because their labour is now more costly to employers, their incomes will fall. Our discussion will focus on the first group.

Could the 'average' recipient of minimum wages be classified as poor? To answer this question it is necessary to convert both the poverty line levels of income and minimum wages into comparable units. We shall convert both into total household income per month. The average number of wage recipients per household is 1.8. At a minimum wage of Bt. 130 per day and an average of 26 working days per month, average monthly household wage income is therefore Bt. 6,084. Average wage income as a share of total household income is 59.4 per cent, implying an average total household income for households whose wage-earning members each receive the minimum wage of Bt. 10,242. For households at the poverty line, the national average poverty line per person in 1999 was Bt. 886 per month. Average household size in 1998 was 3.4, implying that a household at the poverty line level of income received an average household income of Bt. 3,012, less than one third the average income of minimum wage receiving households. (Bt37: US$1, Bt21: A$1)

When the frequency distributions of the numbers of wage recipients per household and numbers of family members per household are considered, similar calculations to the above indicate that no more than 3 per cent of minimum wage recipients are poor, according to the official poverty definition. These are households receiving the minimum wage but which have only one wage recipient and which consist of five or more members. Other minimum wage recipient households enjoy incomes above the poverty line. It follows that the beneficiaries of an increase in minimum wages could include very few poor households; the beneficiaries would overwhelmingly be non-poor. In addition, to the extent that raising minimum wages would cause some workers to lose their jobs, some of these could potentially become poor, thereby adding to poverty incidence, an effect that the above calculations have not attempted to quantify.

WATCHPOINT: Increasing minimum wages is unlikely to be an effective instrument for reducing poverty.


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