There are many economic lessons we can learn from other countries. Thailand’s labor market policies present themselves as having grown toward greater maturity as economic development and sustained progress brought greater social and economic security for its citizens.

“Market-based labor policies.” In the beginning of its modern rise as an economy, Thailand’s was more concerned with promoting jobs and industries. Its people were poorer than us. The government put its focus on inducing economic activity to develop and grow. Businessmen who put up businesses did not have much to worry about excessive government regulations.

In 1967, the newly established Asian Development Bank sent its first economic mission to a member country in preparation for the first country loan it would ever give. (This turned out to be the Industrial Financial Corporation of Thailand, an institution that re-lent resources to the private sector.) I was an economist on this pioneering mission. Part of my job was to contribute to the analysis of the country’s economic prospects in industry.

One of the things that struck me was the absence of labor laws regulating wages, among others. Philippine minimum wages were then already set in 1952. At that time, the Philippine minimum wage rate was P4 per day in industry, then the equivalent of $2 per day.

“Thailand’s minimum wages are legislated.” The minimum wage first established in 1972 was confined mainly to the Bangkok metropolitan area. Soon after, the government decided to cover the entire country. The level of average wages compared to what workers aspired for was very disparate but it was only a fraction of Philippine minimum wages.

When an economic and financial crisis struck Thailand in 1998, the government broadened protection of the labor market with a Labor Protection Act. By then, Thailand had grown to a point at which its economy had already surpassed ours in per capita terms.

The Thailand law gave regional dimension to the minimum wage. As the policy evolved, by 2004, 14 minimum wages were in effect. In 2011, there were about 32 minimum wages. The implementation of the law was designed to “reduce disparities that exist in the country and alleviate the burden on lower-income wage earners.”

“Criteria for adjusting the minimum wage.” The wage adjustments undertaken by Thailand’s wage committee, in recommending changes in the minimum wage level, take into account many factors: (1) cost of living; (2) inflation rate; (3) “subsistence” standard; (4) production cost; (5) goods and services prices; (6) business ability to pay; (7) labor productivity; (8) gross domestic product (GDP); and (9) economic and social conditions.

Many of these are contradictory criteria. But the government did not go to the extent of dictating the use of a “living wage” – a welfare criterion subject to subjective manipulations. Instead, it was based on the ability of business to shoulder the wage adjustment. Factors (6), (7) and (8) were considerations that grounded the committee to economic realities.

The World Bank recently estimated the level of the minimum wage in effect in some countries and calculated the yearly measures of minimum wages of different countries as a percent of the total value added per person. The yearly minimum wage income was taken as a ratio to the country’s GDP per head.

Of 42 countries, the Philippine minimum wage turned out to be the highest relative to its income position. It is at 70 percent of the GDP per head. That of Thailand is relatively moderate, at 17 percent of GDP per head.

Think of it this way. Thailand’s GDP per head ($4,420) is twice as much now as that of Philippine GDP per head ($2210). So, in fact, 70 percent for the Philippines, compared to 17 percent for Thailand, of GDP per head is 4.5 times higher! That’s how high the minimum wage in the country has been set relative to Thailand’s.

“Institutional aspects.” Minimum wage setting in Thailand follows the tripartite method promoted by the International Labor Organization (ILO). Since the early 1960s, the Philippine wage setting process has been based on this pattern.

The process of wage setting is in two-parts. First a national committee sets some guidelines for the provincial setting wage committees. A regional determination by various wage committees takes place through negotiation. A second wage committee at the national level sets the pattern for the national minimum wage which applies to the high wage, which is used as the reference rate that sets the limit.

There are many types of workers that are explicitly not covered by the minimum wage. These are farm workers (except wage workers in agricultural firms), government (both at national and state levels) employees, employees of state owned corporations, domestic help, and workers in non-profit organizations.

“Impact of minimum wage on poverty alleviation.” The same World Bank technical study on minimum wage tried to establish a connection on whether the presence of the minimum wage helped to reduce poverty in Thailand.

The results are very inconclusive on this count. (These are statistical studies in which the impact of the imposition of the additional minimum wage rates was measured against the income incidence {as proxy for poverty levels} of workers.) Thus, the proposition that raising the minimum wage reduces poverty was not proven. In fact, some results showed that it worsened the income position of some groups, especially the unskilled workers.

The strong reduction of poverty in Thailand has been due to the high rate of growth which provided jobs and the rise of productivity of labor.

“Impact of minimum wages on skills and on educational attainment.” The same study addressed another question. What is the impact of a rise in minimum wages on labor, on the employment of the young, of women, and of workers with different levels of skills?

A rise in minimum wages reduces employment. There was a robust answer to the question. The rise in the minimum wage reduces the employment of women and of the young irrespective of gender. The employment of those with very little education, those with only elementary level education, and those with lower secondary education suffers the most.

In short, wage increases tend to harm skilled workers less (those with higher secondary education and with collegiate education) but do more harm to the unskilled.

“Implications on the Philippines.” Many aspects of labor policies that we observe for Thailand should help policy-makers appreciate the need to reform our labor market policies. Our labor policies helped to drive many industries to locate in Thailand and our neighbors and not to us. –Gerardo P. Sicat (The Philippine Star)

My email is: gpsicat@gmail.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/