Demographics and wages

Demographics and wages

IN June 2024, Thailand's ruling Pheu Thai Party announced its decision to raise the national daily minimum wage by as much as 14 percent to 400 baht ($10.80).

On July 1, 2024, Vietnam's Ministry of Labour, War Invalids, and Social Affairs "increased minimum wages for employees under employment contracts by 6 percent over existing regional minimum wages." This brings the regional monthly minimum wages as follows: Region 1, $194; Region 2, $173; Region 3, $151; and Region 4, $135. These compare to Thailand's monthly basic wages of $285.48 and the Philippines' $286.52.

Reactions

Southeast Asia's major manufacturing hubs are raising their minimum wages in the second half of the year. This potentially forces large companies to "rethink their strategies as the region draws more investments and becomes a larger part of the global supply chain."

In a recent Nikkei Asia article, Thailand's Joint Standing Committee on Commerce, Industry, and Banking said, "The wage hikes will hit labor-intensive companies the hardest, resulting in job losses and a hit to Thailand's competitiveness compared to its Southeast Asian peers."

The Employers' Confederation of Thai Trade and Industry "reckons higher wages could chase manufacturers out of Thailand and into countries like Vietnam and Cambodia, which have younger workers." The Federation of Thai SMEs "argues that a higher minimum wage could mean that Thai employers will hire cheaper migrant workers from Myanmar, Laos and Cambodia, which could drive up unemployment" among Thais.

In an article on May 16, 2024 at The Fulcrum, Peter Warr, visiting professor at NIDA in Bangkok, said that in the May 2023 election, the Pheu Thai Party "promised to double Thailand's minimum wage" to 600 baht (from 328 or 354 baht, depending on the province).

Professor Warr said that "the government lacks the legal power to set the minimum wage unilaterally. Thailand's minimum wages are determined by an independent tripartite committee comprising representatives of employees, employers, and officials. They do this using an established but still secret formula that emphasizes the cost of living and the rate of unemployment. Both the rate of inflation and measured unemployment have been very low in recent months."

Demographics and wages

David Hutt wrote in The Diplomat on June 5, 2024, "Thailand will have to depend on migrant workers from here on. Unemployment will be a bygone concern very soon. By conservative estimates, Thailand's working-age population will decline from around 49 million to 38 million between 2020 and 2050. That's a loss of around 400,000 people each year. Put differently, the size of the workforce will be a third smaller in 2050 than it is today. And estimates suggest that labor demands will surge in the coming decades, requiring even more workers than Thailand currently has."

Some Asean countries are experiencing a demographic sweet spot, like PDR Lao and the Philippines, with a national median age of 25 and 25.4, respectively. In contrast, in 2023, Thailand's median age is 41, compared with Indonesia's 31.2, Malaysia's 31.4, Vietnam's 32.7 and Singapore's 38.9.

Hutt continues, "Thailand is facing major demographic problems. Currently, there are twice as many over-65s as under-14s. By 2050, there will be just 7.8 million children and 21 million retirees. Almost 40 percent of the population will be 60 and over. The median age will reach 51 by 2050. Thailand's fertility rate is now between 1.08 and 1.16 and falling, so it will never return to the reproduction rate (2.1). There were only 485,000 new births in 2022, the lowest in 70 years."

Thailand's population ages 15-44 (best suited for child-bearing) is declining. Even if Thailand is able to double or triple its number of births now, it has to wait for a couple more decades before young people can join the workforce.

Hutt estimates that Thailand will need help from its neighbors Cambodia, Laos and Myanmar, where millions of migrants could come from and join the Thai workforce. Automation will be of little help. By 2050, the size of the combined workforce from Thailand's three neighbors will be around 8.1 million. Considering the possible growth of the Thai economy, the 8 million migrant workers from its neighbors will not be enough to compensate for the country's shrinking workforce.

This is an opportunity for the Philippines. At the rate the Filipinos are reproducing, there would likely be an estimated 28 million more workers by 2050, on top of the current estimated 50 million.

But Thailand will not be alone in its predicament. China's median age as of 2023 is 38.9, South Korea's is 45, and Japan's is 49.5. These countries will also have a shortage of young and productive workers and are willing to pay higher wages for migrant workers.

It appears now that Thailand's move to raise minimum wages is for a good reason. If wages were to remain almost dormant as in the past (growing by 2.4 percent per annum), the dwindling workforce would still naturally push wages up due to the supply and demand situation. To avoid a possible demographic collapse and wage inflation, it seems that the Pheu Thai Party must have made a sound decision in raising minimum wages to a level that still makes Thailand comparative in wages with the Philippines and others in the Asean 6.

Demographic dividend

The United Nations Population Fund (UNFPA) defines a demographic dividend as "the economic growth potential that can result from shifts in a population's age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working age share of the population (14 and younger and 65 and older)."

A country is said to have received a demographic dividend when "it has gone through a demographic transition where it switches from a largely rural agrarian economy with high fertility and mortality rates to an urban industrial society characterized by low fertility and mortality rates."

The Philippines, with the lowest median national age in the Asean, next only to PDR Lao, is in a demographic sweet spot and is about to reap a demographic dividend. In a recent census, "approximately 64 percent of Filipinos are between the ages of 15 and 64." However, the window of opportunity is closing quickly because of the challenges related to high fertility rates among the poorest households (where stunting is a pervasive problem) and the relatively high unemployment rate among the youth population. A demographic sweet spot could become a demographic nightmare.

Peter Warr said, "The solution is to raise the productivity of labor. Skill levels must be upgraded. Education reform, including adult retraining, is a vital part of the process, but it takes time and is costly, not to mention politically difficult. Business efficiency must be improved by reducing red tape, and public infrastructure must be continuously upgraded."

Raising productivity, not just wages, is the real solution.

Ernie Cecilia is the chairman of the Human Capital Committee and the Publications Committee of the American Chamber of Commerce of the Philippines (AmCham); chairman of the Employers Confederation of the Philippines' (ECOP's) TWG on Labor and Social Policy Issues; and past president of the People Management Association of the Philippines (PMAP). He can be reached at [email protected].

  • https://www.msn.com/en-ph/news/other/demographics-and-wages/ar-BB1pKIhy?ocid=00000000

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