Yes, and I thought the whole idea of minimum wage is no longer in trend.
I was wrong.
Research on minimum wage has been numerous in the past few decades, so much that I led myself to believe that it was no more room for any young, energetic researchers to put his energy on this topic. Personally, one of the most fascinating papers on Minimum wage was the 1992 paper by Card& Krueger*. However, the eye-raising part of the paper is not the finding result; it is how they studied it. I say it because the result is either Minimum wage does have an effect on employment, or it does not. Graphical analysis with the application of the competitive model of labour market or its monopsony counterpart would reveal the finding. On the other hand, the way they set the investigation was something not so simple, and requires some imagination. The fun thing about their research is that they got to go around a couple of American cities to see how the sudden Minimum Wage law presented its impact on a few fast-food chains. Other succeeding papers followed their quasi-experiment methods and similar results were found. For me, this line of literature needed a revamp.
And then, thank to the fancy tool of Econometrics, the 2002 Di Nardo& Lee paper rescued the Minimum Wage literature once again. The aim of the paper remained the tradition one- find the impact of raising the wage on employment. However, the application of Regression Discontinuity came most handy at the time. Then again, labour economists came to struggle again on how to give a face-lift on Minimum Wage.
As I said, I realize I was wrong. Wrong on the basis that indeed the study of the impact of minimum wage is increasing needed in some economies. Thailand is one of those. How was I enlightened on this fact? With the team of young Thai economists, we got the opportunity to tour to all 4 main regions in the Land of smile to have a forum with practitioners from Ministry of Labour’s provincial offices. And when came the question time, all we got asked was the troubling uncertainty on the issue of Minimum Wage. The question was raised most serious was the explanation of the disparity of the Rate across provinces- theoretically & subjectively.
And the idea of Minimum Wage is, to me, no longer simple, at least in Thailand anyway. We used the idea of the Law of One Price as the centrality of our explanation. The ‘equitable’ differences of the Wage happened when there are barriers of factor movement- meaning house prices, family ties and so on. On the other hand, everyone knows that the setting of Minimum wage is in fact not fair! Economists offer the idea of the level of unemployment, the number of firms as proxies indicating what we call ‘the relative bargaining power’ between buyers and sellers of the labour power. In Thailand, the setting of minimum wage is done on a monthly basis, through what is called ‘the tripartite’ with officers from the Ministry of Labour acts as mediator.
At current time, the least of the Wage is 120 baht per day in Chai-yapoom province is roughly 100 baht lower than Bangkok’s. In purchasing power parity term, that could equal to 2 extra dinners for person. And having mentioned the PPP, I then recalled an additional question. Even practitioners in Thailand were not certain how substantial the existence of Minimum Wage as a useful policy. On principle, the Wage is supposedly an additional safety net for the poor. However, the way the level of the Wage is set up, no one had a clue. Basically, the initial baseline of the Wage came from a miracle blackbox and officers at the MoL merely know that this level will be adjusted according to the rate of provincial inflation.
This is a shocking finding, if nothing else about it is sufficiently sexy.
In England, before the National Minimum Wage was introduced, there was a series of serious studies. There were a number of debates, public hearings before when it finally came out. And unlike Thailand, the British government only differentiates the rate between London and the rest.
So how should the Wage ideally be set, for the case of Thailand? Simply, there are two alternative methods to go about. You can either set it based on the employer’s side- meaning that the level of the wage is aligned with the ability of pay of average local employers. By theory, wage should, at least, equal to the marginal productivity of labour. Following the concept, the Wage would be fair, or at least seem as if. Unfortunately, having set the wage this way would not guarantee the standard of living of average, low skilled workers. Thus, the alternative is the Living wage. Minimum wage should base on how much an average person has to spend to live a suitable life in a day.
As far as I know, the literature on minimum wage that seemed abundant previously is not entirely the case in Thailand. There is a serious lack of rigorous studies on the impact of the Wage, the appropriate method to set up, and most importantly the dynamic of the bargaining institution.
Yes, on my flight back from the South, I realise there are still plenty of fun works labour economists in Thailand must attack. Only things you would need are a bit of energy, and a little bit of wild imagination !!!
I was wrong.
Research on minimum wage has been numerous in the past few decades, so much that I led myself to believe that it was no more room for any young, energetic researchers to put his energy on this topic. Personally, one of the most fascinating papers on Minimum wage was the 1992 paper by Card& Krueger*. However, the eye-raising part of the paper is not the finding result; it is how they studied it. I say it because the result is either Minimum wage does have an effect on employment, or it does not. Graphical analysis with the application of the competitive model of labour market or its monopsony counterpart would reveal the finding. On the other hand, the way they set the investigation was something not so simple, and requires some imagination. The fun thing about their research is that they got to go around a couple of American cities to see how the sudden Minimum Wage law presented its impact on a few fast-food chains. Other succeeding papers followed their quasi-experiment methods and similar results were found. For me, this line of literature needed a revamp.
And then, thank to the fancy tool of Econometrics, the 2002 Di Nardo& Lee paper rescued the Minimum Wage literature once again. The aim of the paper remained the tradition one- find the impact of raising the wage on employment. However, the application of Regression Discontinuity came most handy at the time. Then again, labour economists came to struggle again on how to give a face-lift on Minimum Wage.
As I said, I realize I was wrong. Wrong on the basis that indeed the study of the impact of minimum wage is increasing needed in some economies. Thailand is one of those. How was I enlightened on this fact? With the team of young Thai economists, we got the opportunity to tour to all 4 main regions in the Land of smile to have a forum with practitioners from Ministry of Labour’s provincial offices. And when came the question time, all we got asked was the troubling uncertainty on the issue of Minimum Wage. The question was raised most serious was the explanation of the disparity of the Rate across provinces- theoretically & subjectively.
And the idea of Minimum Wage is, to me, no longer simple, at least in Thailand anyway. We used the idea of the Law of One Price as the centrality of our explanation. The ‘equitable’ differences of the Wage happened when there are barriers of factor movement- meaning house prices, family ties and so on. On the other hand, everyone knows that the setting of Minimum wage is in fact not fair! Economists offer the idea of the level of unemployment, the number of firms as proxies indicating what we call ‘the relative bargaining power’ between buyers and sellers of the labour power. In Thailand, the setting of minimum wage is done on a monthly basis, through what is called ‘the tripartite’ with officers from the Ministry of Labour acts as mediator.
At current time, the least of the Wage is 120 baht per day in Chai-yapoom province is roughly 100 baht lower than Bangkok’s. In purchasing power parity term, that could equal to 2 extra dinners for person. And having mentioned the PPP, I then recalled an additional question. Even practitioners in Thailand were not certain how substantial the existence of Minimum Wage as a useful policy. On principle, the Wage is supposedly an additional safety net for the poor. However, the way the level of the Wage is set up, no one had a clue. Basically, the initial baseline of the Wage came from a miracle blackbox and officers at the MoL merely know that this level will be adjusted according to the rate of provincial inflation.
This is a shocking finding, if nothing else about it is sufficiently sexy.
In England, before the National Minimum Wage was introduced, there was a series of serious studies. There were a number of debates, public hearings before when it finally came out. And unlike Thailand, the British government only differentiates the rate between London and the rest.
So how should the Wage ideally be set, for the case of Thailand? Simply, there are two alternative methods to go about. You can either set it based on the employer’s side- meaning that the level of the wage is aligned with the ability of pay of average local employers. By theory, wage should, at least, equal to the marginal productivity of labour. Following the concept, the Wage would be fair, or at least seem as if. Unfortunately, having set the wage this way would not guarantee the standard of living of average, low skilled workers. Thus, the alternative is the Living wage. Minimum wage should base on how much an average person has to spend to live a suitable life in a day.
As far as I know, the literature on minimum wage that seemed abundant previously is not entirely the case in Thailand. There is a serious lack of rigorous studies on the impact of the Wage, the appropriate method to set up, and most importantly the dynamic of the bargaining institution.
Yes, on my flight back from the South, I realise there are still plenty of fun works labour economists in Thailand must attack. Only things you would need are a bit of energy, and a little bit of wild imagination !!!
3 comments:
But how would you define a suitable living wage? I think it will be a difficult thing to do and probably varies according to where you live. It will depend largely on the number of family members as well as your gender and age groups, among other things.
I would predict that if we were to come up with a suitable living wage, it will be a lot higher than the current minimum wages. This could, of course, lead to increasing unemployment in the economy, which could potentially outweigh the marginal benefits of having a high minimum wage.
The topic is opened to discussion, I guess. Good article though!
From my view,wage in rural areas are too low comparing to BKK.Are the same 25 baht noodle sold for 10 baht or 15 baht in Chai-yapoom?
If we set the same wage in all area of Thailand,then can it reduce migration to BKK?
The last point,is it possible that employers corrupt the officers to set low rate of wage in their province?
These what I think (don't know right or wrong) what do you think?
So is it appropiate to leave the rate of wage at present?
Can you explain a bit in here or in labor class on Monday, I am curious since Minimum wage' s group but had no change to ask.
Your comment is right, Setting the new 'minimum wage' according to the 'expense' instead of 'productivity' is not an easy job. Even in the UK, the on-going research under the Low Pay Commission is still trying to come up with something. Most important, having taken the local cost of living into account, it would be difficult to have the rate set for universal purpose. In other word, the rate will probably need to vary according to the area. And everything is on average. Hey, it is not at all so bad to think that, as the setting of Minimum wage by currect method is more arbitrag than any other things. My other suggestion will be, why not set the 'new' rate at the point where the low-earning households are ensured to have similar level of 'saving' i.e. net income minus the necessary expenses. And in order to prevent the negative effect of rising unemployment, the setting of the rate must therefore have consultant from major employers in the area, in order to assess 'the ability to pay'.
With regard to the rural-urban labour movement, I do not believe having the rate set like I suggest would have any strong implication on that. Mobility always incurs some costs as there is friction in the market. Thus, rational workers should realise that with the similar level of real-price saving, he would probably be indifferent wherever therefore stays put.
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