Evaluating the cost of a wage hike
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Evaluating the cost of a wage hike

While some sectors anticipate little change if the daily minimum rate is raised, others fear the additional cost will be passed on to consumers

Construction workers rest on an overpass section at the Na Ranong intersection in Bangkok in April. Increasing the daily minimum wage is a priority of the new administration. (Photo: Wichan Charoenkiatpakul)
Construction workers rest on an overpass section at the Na Ranong intersection in Bangkok in April. Increasing the daily minimum wage is a priority of the new administration. (Photo: Wichan Charoenkiatpakul)

Following Prime Minister Srettha Thavisin's revelation last week that the government expects a daily minimum wage hike to 400 baht in either November or December, the business sector voiced its concerns regarding increasing costs that could eventually create an additional burden for consumers.

Raising the minimum wage will increase costs for labour-intensive industries such as agriculture, restaurants, food exporters, the retail trade, and construction, said Pisit Puapan, director of the Fiscal Policy Office's Bureau of Macroeconomic Policy.

He said these added labour costs might be passed on to consumers in the form of higher prices for goods and services in some sectors.

However, Mr Pisit said inflation is expected to remain within the target range and have a limited impact on small and medium-sized enterprises (SMEs).

Some businesses might even benefit from increasing purchasing power, such as finance and banking.

An assessment carried out by the Office of SMEs Promotion found overall labour costs account for 12% of the total costs for SMEs, 16% of the trade sector's total costs and 15% of the service sector's total costs.

If minimum wages increase by 18.7% from 337 baht to 400 baht per day, labour costs would rise by 0.23%, while product costs would gain only 0.03%. This means the impact on product costs is estimated to be minimal, said the office.


Not everyone agrees with the Bureau of Macroeconomic Policy's prediction that SMEs face a less severe impact.

"We don't want the government to increase the minimum wage next year. Solving economic problems requires a mix of remedies," said Sangchai Theerakulwanich, president of the Federation of Thai SMEs.

If Mr Srettha's administration pushes ahead with a wage hike to 400 baht a day, both employers and workers will encounter a more severe impact than occurred during the increase to 300 baht a day that took place during the Yingluck Shinawatra administration 10 years ago.

Many SMEs are facing liquidity problems and difficulties in obtaining loans, meaning they will bear the brunt if wages are hiked, said Mr Sangchai.

Even large companies are reeling, especially from the impact of the recent pandemic. Businesses are coping with a global economic slowdown, which is affecting the country's export sector, he said.

"This is a tough time for businesses to maintain employment while trying to survive," said Mr Sangchai, stressing now is not the right time to increase daily wages.

He said employers are aware workers need more money as the cost of living rises. They are willing to increase the daily wage if the economy is performing well, said Mr Sangchai.

Increasing the daily minimum wage to 400 baht while the economy is sluggish would be more detrimental than the time it was raised to 300 baht, he said.

Workers catch their breath at a construction project. A minimum wage of 400 baht would raise labour costs by 0.23% and product costs 0.03%. Apichart Jinakul


Almost 2,500 workers were laid off in the first five days after the 300-baht daily minimum wage was enforced nationwide on Jan 1, 2013, according to the Labour Ministry, citing a report from the Social Security Office.

Layoffs started from April 2012, when the authorities first implemented the wage hike in seven pilot provinces, including Bangkok.

More than 243,000 workers were laid off between April and December, according to the ministry.

Many companies decided to relocate their factories to neighbouring countries to avoid the impact of the wage hike, said Mr Sangchai.

In addition to Thai workers, authorities are also helping several million foreign migrant workers if they decide to increase the daily minimum wage, he said.

Wasan Kiangsiri, president of the Housing Business Association, said hiking the minimum wage must be handled carefully as setting too high a level may lead to unemployment.

"If wages are raised too high, business owners will reduce the size of their workforce," he said.

"The government must adopt a long-term perspective on foreign investment and compare it with neighbouring countries."

Mr Wasan said wages cannot be increased without also addressing price controls.

If the prices of goods rise faster than labour costs, this would have a negative effect on the public, he said.

Sutee Ketsiri, managing director of homebuilder Built To Build Group, said the Pheu Thai Party's pledge to gradually increase the daily minimum wage to 600 baht by 2027, up from an average of 353 baht now, carries risks.

"This represents an increase of roughly 70% over a four-year period, or 18% per year," he said.

"The property and homebuilding business would face a significant roadblock from rising house prices caused by labour and construction material costs."


Asia Plus Securities (ASPS) said higher costs for business operators from a wage hike would be passed on to consumers.

The minimum wage increase would differ for each province, with the daily minimum wage in Greater Bangkok expected to increase by 47 baht or 13.3% from 353 baht a day, significantly less than the average uptick of 61 baht or 18% from 339 baht a day in other provinces.

"Higher wages result in higher costs in the entire economy, with the heavier cost burden passed on to consumers," said analyst Pasakorn Wangvivatchareon.

ASPS said hotels mostly have foreign customers, so it would take less time to pass on the cost burden to their guests.

Restaurants mainly have Thai customers, so they need to wait for local consumer purchasing power to recover, though Thais are struggling with mounting household debt, said the brokerage.

Not everyone in the hospitality sector agrees with this forecast, as they insisted the segment has experienced an uneven recovery.

Marisa Sukosol Nunbhakdi, president of the Thai Hotels Association, said while most luxury hotels based in prime locations already pay their staff more than 400 baht a day, many hotels categorised as three-star or lower that are not centrally located would face an impact from a minimum wage hike as they are still paying less than the current minimum wage.

These hotels previously targeted Chinese tour groups and are waiting for the visa-free scheme to generate greater demand, which might take until next year, said Mrs Marisa.

She said 20-25% of all hotel staff are minimum wage workers, such as housekeepers, gardeners and waiters.

Compared with other industries that can utilise robots and technology to fill some roles, the hospitality business still requires employees, as they represent the sector's main component, said Mrs Marisa.

She said the middle of next year would be an appropriate time to raise the daily minimum wage, as both international and domestic tourism are expected to have fully resumed by then.

Mr Pisit of the Fiscal Policy Office believes the daily wage increase will help low earners to some extent, and such a small rise is unlikely to push up the rate of inflation.


Some manufacturers are also heavily reliant on manpower and are preparing to face a more significant cost burden.

Chih-hao Huang, chief human resources officer at Delta Electronics (Thailand), said the cost of hiring staff is always a critical factor among foreign investors.

The SET-listed electronic components maker with a total staff of more than 20,000 paid annual wages of roughly 13 billion baht last year, a third of which was direct labour in relation to the daily wage.

"This is the portion we tried to keep within a range of 4-5% of our total cost of goods sold," he told the Bangkok Post.

Based on an annual third-party salary survey of the high-tech industry, Delta's salary package is always competitive, said Mr Huang.

"Even with the increase, the impact will be manageable," he said.

However, an increase in wages means Thai electronics manufacturers should move further up the value chain, said Mr Huang.

This includes investing in R&D and advanced technology, along with transitioning to smart manufacturing and implementing constant skill training of its workforce, he said.


Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said raising the minimum wage represents an immediate increase of 10-20% from the minimum wage last year.

He said if the new rate is applied in November this year, as suggested by the prime minister, the private sector is prepared to cope and will attempt to stabilise prices for as long as possible to alleviate the burden on the public.

In return, Mr Sanan said the government should accelerate other economic stimulus measures, including measures to reduce energy prices to an appropriate level to cut costs for business owners and enhance their production capabilities and competitiveness.

Measures to promote trade and investment should be implemented to expand markets and encourage economic growth, he said.

"The chamber has maintained a clear stance since before the election: the minimum wage should not be uniformly raised nationwide because of the differing contexts and potential of each province," said Mr Sanan.

He said adjustment of the minimum wage should follow labour laws, such as Section 87 of the Labor Protection Act that specifies factors to consider before enacting a minimum wage hike, including the inflation rate, cost of living and production costs.

The tripartite committee on wages should determine guidelines and the appropriate rates for each province, said Mr Sanan.

"The chamber proposes the government speeds up addressing economic issues," he said.

"If the economy is doing well, expenditure will be good and increases in the minimum wage will follow suit."

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), said the latest wage increase proposal followed government measures to reduce electricity and diesel prices for businesses and households.

The government is likely keen to find methods to increase consumer income, he said.

Mr Kriengkrai earlier met Labour Minister Phiphat Ratchakitprakarn and both agreed a wage hike must be carefully considered by the tripartite wage committee comprised of employers, employees and government representatives.


KGI Securities (Thailand) calculated every 15% increase in the daily minimum wage would decrease listed companies' net profits by between 0.7-3.3% in 2024.

"Our sensitivity analysis suggests the hotel sector will face a limited impact from a minimum wage hike as most workers in the industry already receive compensation above the minimum wage," said analyst Tidarat Palodom in a recent research note.

Some workers also receive additional income from service charges, she said.

Central Plaza Hotel is expected to register the biggest impact -- 3.3% on its forecast net profit for 2024 for each 15% increase in the minimum wage -- as it claims a comparatively larger proportion of its revenue from the food sector than its peers.

Minor International is projected to have the least impact -- 0.7% of its forecast net profit in 2024 for every 15% increase in the minimum wage -- as the majority of its revenue comes from overseas business, said the analyst.

Phusadee Arunmas, Kanana Katharangsiporn and Molpasorn Shoowong

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