Impasse hikes unemployment

Impasse hikes unemployment

Analysis: The political stand-off is dragging down labour demand

Thailand's unemployment rate will likely rise following the political impasse that has taken a serious toll on the economy as well as public and private investment.

Unemployed workers check a job board to see if any listings match their qualifications. Nanchanok Wongsamuth

This will add to the slight increase in unemployment in the past year due to the 300-baht minimum daily wage policy.

Thailand has long faced a labour shortage problem, with the unemployment rate standing at 0.7% to 0.8% for many years. However, the ongoing political unrest that kicked off early last November has started to have a negative effect on the labour market.

Yongyuth Chalamwong, research director at the Thailand Development Research Institute Foundation, said the ongoing political impasse is taking a serious toll on the country’s economy. The present political vacuum has halted most public investment while delaying fresh private investment, as investors cannot foresee direction. On top of that, the change of government will also create policy risks to investors.

Many agencies have recently revised their economic growth projections to less than 3% from 4-5%.

“If economic growth is lower than 3%, the unemployment rate will be higher than 1%,” said Mr Yongyuth.

Rising bad loans, a slowdown in exports and lower consumption are also negative economic signs that will hurt demand for labour in the short to medium term.

As of last Dec 31, commercial banks’ bad loans had risen by 4.48% or 11.4 billion baht to 266 billion. This signifies the lower debt servicing ability of borrowers who are business operators and consumers.

Yongyuth: No solution to the crisis in sight

A decline in exports, one of key drivers of the country’s economic growth, by almost 2% year-on-year in January has also worried many. Last year, the country’s shipments experienced a drop of 0.31% from 2012. The contraction was the first in four years since the US economic crisis hurt Thai exports by 14.3% in 2009. However, the Commerce Ministry hopes the global economic recovery and the weak baht will help to boost export growth to 5% this year.

On top of that, the ongoing poor tourism sentiment definitely dampens the outlook. As of Feb 20, Chinese tourist arrivals through members of the Association of Thai Travel Agents had fallen by 61%, Japanese by 58.8%, Indians by 49% and Russians by 9.32%. If the unrest ends in the first half of this year, losses to the industry are forecast at 90 billion baht.

“The outlook isn’t good at all,” said Mr Yongyuth. “And now the first quarter is almost over, but no solution [to the political deadlock] is in sight.”

Hence, there is a high chance of unemployment hitting 1% or more this year. The impact could be short or medium term.

Meanwhile, during the financial crisis of the late 1990s, unemployment in the fourth quarter of 1998 reached 4.45%, while the number of unemployed stood at 1.45 million. In the second quarter of 1999, the rate surged to 5.32%, with the total number of unemployed hitting 1.74 million.

Wage hike drives joblessness

The hike in the minimum daily wage to 300 baht in seven provinces in April 2012 and all provinces in January 2013 saw a structural change in the Thai labour market. It resulted in a large number of small and medium-sized enterprises (SMEs) shutting down, putting a number of skilled and unskilled workers out of work and causing an exodus from sectors unable to afford the new rate to sectors willing to pay more.

As well, cost-push production costs have forced some companies to relocate their production units to neighbouring countries to enjoy cheaper labour costs.

Wallop Vitanakorn, a vice-chairman of the Federation of Thai Industries, revealed that as many as 100,000 SMEs closed down in the two years since the first wage hike.

The National Statistical Office said unemployment in last year’s third quarter stood at 0.77%, up from 0.58% in the same period of 2012 and 0.66% in 2011. The third quarter of each year is normally the peak hiring season.

“It’s obvious that after imposing the new wage rate of 300 baht, unemployment started to increase,” said Mr Yongyuth.

“And the situation will grow worse if the political stalemate continues for much longer. That’s because demand for workers will continue to drop while the supply side continues to increase.”

Above all, fresh graduates are normally those hit the hardest, given the higher number of graduates but limited number of jobs available.

In last year’s third quarter, unemployment among workers with a bachelor’s degree was 2.03% compared with 1.61% for those with vocational degrees. During the same period, the number of workers holding a bachelor’s degree stood at 4.4 million, while 1.28 million held a vocational degree.

Meanwhile, the prospects of fresh graduates this year look dim.

“Normally unemployment among this demographic is more than 100,000 people. This year things could get worse,” Mr Yongyuth said.

Occupational shift, relocation

The rise in the minimum daily wage has caused a shift in labour. Many workers have shifted to sectors offering better pay and benefits such as the automobile/auto parts and electronics industries.

Those sectors still unable to adjust to the higher wage rate include labour-intensive industries such as feedmills, furniture, textiles, food processing and leather products.

On top of that, an increasing number of companies are relocating to neighbouring countries such as Indonesia, Vietnam and Cambodia to capitalise on lower labour costs. This include companies in the textile and electronic sectors.

This will incur a loss of job opportunities for Thai workers of 5-10%, said Mr Yongyuth.

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