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NEWS UPDATES Asean Affairs           23   July  2011

Thai wage hikes may lead to major layoffs

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The University of the Thai Chamber of Commerce says that increases in the minimum wage and salaries for new graduates in January next year could lead to layoffs of as many as 500,000 workers and closures of up to 200,000 businesses as a worst case, according to a new survey.

The additional costs and related impact could reduce gross domestic product by between 0.2 percent and 0.4 percent.

The university conducted the survey to gauge how businesses would respond if the new Pheu Thai-led government raised the minimum wage to 300 baht (US$10) a day nationwide and enforced a starting salary of 15,000 (US$500) baht a month for new bachelor's degree holders.

Thanavath Phonvichai, a UTCC economist, said the higher wages would shock the economy in the short term, possibly leading to 500,000 workers being laid off and 100,000 to 200,000 businesses closing in the first quarter next year.

The hardest-hit industries include textiles, leather, construction and small and medium-sized enterprises. Businesses would likely shift to hiring more immigrant workers.

The university asked for comments from 800 entrepreneurs nationwide in the industry, trade and services sectors from July 16-17.

If the minimum wage is raised to 300 baht per day, 97.1 percent of respondents said they would turn to foreign workers, 78.4 percent will raise goods prices, 68.7 percent will replace workers with machinery, 65.8 percent will lay off workers and 35.8 percent will close their businesses.

On assistance measures from the government, 48.6 percent of respondents want the government to pay compensation for the new rate, and 28.1 percent want a higher personal income tax deduction, skills training and gradual implementation of the wage increase. "If the government provides no assistance and businesses have to pay 140 billion baht in additional costs, GDP may dip by 0.2 percent to 0.4 percent or 30-50 billion baht next year. It may cause inflation to rise by 1.1 percent to 1.3 percent," he said.

On the contrary, if the government pays the 140 billion baht in compensation, GDP may rise by 1 percent to 1.3 percent and inflation may increase by 0.8% to 1%.

The poll revealed 46.6 percent of respondents believed wages could be lifted only if the government provided assistance in the short term to prevent an economic shock.

Mr. Thanavath said the government should compensate SMEs so they have liquidity to pay the extra amount.

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