The 300 baht minimum wage policy the Pheu Thai Party campaigned on which has been implemented across the country since Jan 1 is one of the most contentious issues in Thailand today. On the one hand, there are those who say it will be a death knell for many labour-intensive businesses and force investors to look to neighbouring countries to set up new operations. Then there are those who point out that as the cost of living rises, the lower economic sectors are getting squeezed the hardest, and there has not been a significant minimum wage increase for a very long time.
Much of the difficulty with implementing the policy has to do with the fact that it is a relatively large increase to impose suddenly, and it also puts pressure on employers to raise wages across the board, as more skilled employees expect to earn more than inexperienced new hires. At the end of the day, however, it's hard to defend the assertion that 300 baht is too much for a full day's work. The fact is that the 300 baht minimum wage has been signed into law and backing away from it now would be disastrous in terms of social discontent and erosion of trust in government.
Therefore a report in yesterday's Business section, "Central Trading uses lean manufacturing" was encouraging. The report says that over the past two years, Central Trading Co, which manufactures mostly brand name jeans, increased workers' daily average wages from 215 baht to more than 400 baht per day through projects initiated by the Industrial Promotion Department maximise efficiency and ensure that raw materials are utilised properly. Suphot Phawachittranon, assistant vice-president for production, said: "Two years ago employees did not know how to use raw materials efficiently and also lacked teamwork skills." The greater efficiency has resulted in lower production costs, which has enabled the company to raise wages.
Increased efficiency is a double-edged sword, however, as it might also lead to staff cuts. If, on the other hand, increased efficiency is used to increase production, it should translate into greater overall profits as well as higher wages, and all without layoffs.
The jury is still out on which way Thailand is headed, and clearly the government and private enterprise need to work together closely to promote the latter scenario.
There have been disturbing reports of layoffs at SMEs attributed to the higher minimum wage, to which the government has responded with a series of measures including tax exemptions and lowered tax rates, as well as loans.
About a week after the wage hike was imposed nationwide, Democrat Party leader Abhisit Vejjajiva said the government was not doing enough to help SMEs, and he may be right about that. However, he was incorrect to liken the minimum wage policy to the rice-pledging scheme, as reported in the same article. As fellow Democrat and former finance minister Korn Chatikavanij pointed out, the evolution of the rice-pledging scheme under the Pheu Thai government is proving disastrous, as "every grain of rice is now acquired by the government at 40% above the market price". Mr Korn made the observation in a thought-provoking article in yesterday's Bangkok Post based on a speech he gave at a UN High-Level Meeting on Beyond Populism, in Rabat, Morocco last week. He gave examples of "good" and "bad" populist policies. The former included free education and free basic health care, while the latter included free tablet computers for first graders as well as the rice-pledging scheme. Interestingly, Mr Korn made no mention of the 300 baht minimum wage, but a livable wage is just as important as education and health care in terms of basic human needs. The transition period in implementing the 300 baht minimum wage may be painful, but it will be worth it.
There are signs that this transition may not be as rough as some fear because of Thailand's strong fundamental attraction for investors. Last month Songpol Chevapanyaroj, executive vice-president of Kasikornbank, said that more than 1,000 medium-sized Japanese companies are planning to expand their business and invest in Thailand this year, the highest number for seven years. Obviously these companies are aware of the minimum wage increase. As explained by Mr Songpol: "Thailand in Japanese companies' eyes has completed facilities and infrastructure for operating business, and the country is a gateway to Asean. Start-up companies are able to run businesses rapidly here."