The new B300 rate minimum wage per day is far too little to sustain life and put something by for the future in Phuket.
Individuals wishing to consume some of all five food groups per day can easily spend B100 per person. Rent for anything but dirt-floor hovels exceeds B150 per day. A 20-kilometre commute, at B4 per kilometre, costs B80.
What’s left to buy a shirt, a tube of toothpaste, or give the kid lunch money?
Charoen Pokphand Group (CP) chairman and CEO Dhanin Chearavanont, one of the world’s richest men and head of Thailand’s largest company, said last January that the minimum should be B500, not B300, because the cost of living is rising.
Most businessmen, however, wouldn’t agree with Dhanin. Small business owners especially are being hit hard.
The new rate, which came into force on April 1, represents a steep increase over the old B221 minimum in Phuket, which, when implemented at the beginning of last year, prompted prognostications of increasing bankruptcies.
Workers in seven provinces benefit this year from the B300 minimum; in the other 70 provinces the minimum wage will increase by 39.5 per cent over last year’s minimum (which averaged B165 around Thailand).
But come January 1, 2013, all provinces will have the same B300 minimum. The Cabinet has agreed to fix the rate at B300 through 2015, but the Committee on Wages reserves the right to amend that policy depending on circumstances.
To workers, the raise is little short of amazing. “They used to fight almost to death just to secure a B2 raise,” one said. “Now we go from B220 to B300 in one jump!”
But is it a suicidal jump? A troubled blogger with a small leather workshop and three employees put the problem faced by many business owners succinctly:
1) New employees have no experience and must be trained
2) Training takes time and costs money
3) Employees are not responsible for mistakes in production, the employer pays for them
4) The employer provides food and transport
5) High staff turnover rate adds to costs
6) Bigger companies can afford such costs, small ones can be bankrupted
Of course, not all businesses provide food and transport, but those that don’t must, ultimately, compensate monetarily. Owners of small- and medium-sized enterprises are therefore between a rock and a hard place.
Workers are still not satisfied: a survey published April 29 found workers’ groups demanding B400 per day, citing minimum living costs of B400 – B600 per day, price inflation and public transport fare increases effective June 15 and 16.
“I don’t know how I’m going to deal with this,” said a Thai business owner who employs about 50 workers in Phuket City.
“I can’t just raise prices to cover the increase, either because they are fixed by contract or because I am competing on price and am already at a disadvantage vis a vis the nation-wide distribution networks.
"I really don’t know what’s going to happen, and I don’t know of a government programme to help me over the hump.”
He said reducing the labour force through lay-offs is not an option because, under the Labour Protection Act, workers receive a month’s severance pay for each year they work up to 10 years.
“It would bankrupt me to lay them off,” he said.
For these and other reasons, the Thai Chamber of Commerce has asked the government to assume responsibility for a portion of payments into Social Security and loan programme to aid small businesses.
They also asked for implementation of the new minimum in increments, which has been ignored.
Inflation is the underlying cause of this mess: the Pheu Thai Party’s plank during campaigning last year to raise the minimum was prompted by steep rises in staple commodities. What’s causing the inflation? Excess liquidity.
It’s a problem throughout this region and South America.
The excess is mainly owing to policies set by the US and Eurozone central banks. Western Europe and America are beset by recession and a mortgage crisis. The central banks have determined that the only way out is to spur investment through cheap money.
The policy has indeed spurred investment, but not much in Europe or America. With interest on sovereign debt too low to cover inflation, most money is going to South America and Southeast Asia.
“Thailand’s financial system is... prone to excess liquidity when the world interest rate declines,” wrote Peter Warr and Bhanupong Nidhiprabha in 1996. “And and this excess liquidity tends to be prolonged.”
Liquidity has been excessive now for almost three years.
Thailand is not the only country in the region where prices are rising – not because of loose monetary policy – but because investors seek a place to park money where it won't lose value. Minimum wages have risen recently in Taiwan and Vietnam (where inflation last year was 23 per cent).
“The global economy has entered a phase of fluid global liquidity amid uneven recovery and shifting risk appetite,” wrote Bank of Thailand governor Dr Prasarn Trairatvorakul in April of last year.
“This phase is characterised by weak recovery in the advanced economies which prompted loose monetary policy and extraordinary monetary measures such as QE2 in the US that have resulted in artificially low interest rates in the advanced economies.
"These record-low interest rates encouraged investors to seek out higher return in risky emerging market assets, particularly here in Asia.”
He did not think the problem would last long. But on April 26 this year, in an address at the Asian Bankers Summit, he was talking about the need to avoid “overly trusting market mechanisms” and over-regulation.
“In Asia, economic and financial liberation is a powerful driving force reshaping our financial landscape...”
Significantly, he did not mention the increased minimum wage as a factor in Thailand’s economic future, which is currently being shaped by global liquidity flows.
The result of that liquidity is a growing gap between rich and poor: the top 20 per cent earn 58 per cent of income; the bottom 20 per cent just four, according to Chulalongkorn University’s Sasin Graduate Institute of Business, providing this country with “income inequality among the world’s highest.”
Thus, spreading the money around is advisable. In the opinion of the University of the Thai Chamber of Commerce’s Center for Economic and Business Forecasting director Thanawat Polwichai, it’s just the right medicine.
He noted on April 27 that the new minimum applies to about five million workers and expects it will be the economy’s driving force this year.
So it shall, increasingly so in years ahead. Thailand will look richer because of it.
But the government will perhaps need to ensure that in guaranteeing the future of workers, they are not putting a period to the businesses that employ them.