Prime Minister Srettha Thavisin sparks controversy by rejecting a proposed 2% minimum wage increase set by a tripartite committee. Defying warnings from the Federation of Thai Industries (FTI) about potential negative impacts on investment, the PM insists on prioritising cleaner and more sustainable ventures for the kingdom. 

Prime Minister Srettha Thavisin took a bold stand this week when he challenged the recommendation of a tripartite committee on the minimum wage and sent it back to the drawing board with a flea in its ear according to multiple sources. Afterwards, in addressing reporters, the Prime Minister appeared to override warnings from the Federation of Thai Industries (FTI) that higher wage costs would thwart inward investment into Thailand arguing that, at any rate, the kingdom was seeking a cleaner and more sustainable future. Significantly, a top aide to the Prime Minister has rejected scaled levels of pay in different parts of the kingdom as contributing to inequality and something that must end.

Prime Minister Srettha Thavisin and top aides, on Wednesday, defended his rejection of lower-than-anticipated minimum wage proposals from the Ministry of Labour at Tuesday’s cabinet meeting. The PM went further and also rejected inward investment into Thailand, which relies on low-cost labour.

Thailand finds itself at the end of 2023 with an lacklustre economy and an undercurrent of tensions at cabinet over the government’s approach to setting the national minimum wage.

Prime Minister Srettha Thavisin has taken a decisive stance, withdrawing discussions on a proposed 2% wage hike that was slated to take effect from January 1, 2024, at this week’s cabinet meeting.

PM stands strong against a measly 2% pay rise for lowest-paid Thai workers but rides into conflict with a statutory committee established under a 1998 law

The PM, unsatisfied with the proposed hikes, announced his intention to seek a revision of the committee’s decision. The proposed daily minimum wages for Thai workers, scheduled to rise from January 1, 2024, range from ฿330 to ฿370 across different provinces. 

These figures fall short of the ฿400 per day minimum wage promised by the Pheu Thai Party during its election campaign.

The move has not only irked powerful groups but also members of a tripartite committee between unions, the government and employers responsible under the 1998 Labour Protection Act for setting the minimum wage by law.

Deep divisions with Thailand’s hierarchical structure and business class as the new PM challenges electricity costs and the country’s minimum wage level

The issue has also sparked heated debate among the country’s economic leaders revealing deep divisions over the economic policy being pursued by the Pheu Thai-led government.

The crux of the issue right now lies in the rejection of a modest wage increase proposed by Labour Minister Phiphat Ratchakitprakarn but there are other areas of friction such as Thailand’s energy and electricity generation policy as the PM has also insisted on overriding a decision by the energy regulator on electricity costs linked to a power generating policy that involves private contractors, many of them privately owned Thai companies which enjoy generous state contracts.

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The country’s labour unions are arguing for a minimum wage rise capable of addressing the wage disparities prevalent in the country and establishing a more equitable baseline for workers nationwide.

Employers want to keep the line with the country’s manufacturing index in decline and exports still suffering a slump in Thailand’s second-generation economy which faces competition from younger, less developed, competitor nations.

Powerful employer lobby group, the Federation of Thai Industries (FTI) has been scathing of Srettha’s intervention this week and warns of lower investment

At the same time, Prime Minister Srettha Thavisin dismissed the 2% raise as inconsequential, asserting that it was not worth considering by the cabinet.

The backdrop of this economic showdown is the Pheu Thai Party’s electoral commitment to a significant increase in the minimum wage. 

During the General Election, the party pledged to raise the minimum daily wage to ฿400 at the commencement of its governance, with a long-term goal of reaching ฿600 by 2027. Presently, the minimum wage in Thailand varies between ฿328 and ฿354, depending on the region.

The rejection of the proposed wage increase by the Prime Minister has drawn swift criticism, particularly from the Federation of Thai Industries (FTI).

The FTI, a powerful voice representing employers, argues that in the current problematic economic climate, businesses cannot afford such a wage hike. Furthermore, they express concerns that an increased minimum wage would undermine the country’s attractiveness to foreign investment.

Chairman Kriengkrai Thiennukul says it will ultimately cause lower levels of employment in Thailand after tripartite committee’s decision is swept aside

FTI Chairman Kriengkrai Thiennukul stated, ‘The wage increases will also lead to less employment, as business operators will cut costs to survive and replace workers with robots and automation systems.’

He cautioned against potential disadvantages, citing increased production costs that could deter investors who may opt for countries with lower labour expenses.

The government’s approach to this issue has become a point of contention, revealing divisions within the ruling coalition. The Labour Minister’s proposal, while approved by the tripartite wage committee – comprising representatives from employees, employers, and state officials – was simply swept aside by the Prime Minister.

In a press conference following the cabinet meeting, Labour Minister Phiphat Ratchakitprakarn, however, expressed his disagreement with the criteria used to calculate the proposed rates.

Subsequently, he withdrew the proposal and pledged to submit revised figures within two weeks. The revised rates are expected to be concluded by the end of the month, marking a critical juncture for this government’s economic agenda.

Government spokesman admitted that the cabinet has no legal authority to alter the tripartite committee’s recommendation on the minimum daily wage level 

Significantly, Government spokesman Chai Wacharonke clarified afterwards that the cabinet lacks the authority to revise decisions made by the tripartite wage committee. He insisted the Minister of Labour Mr Phiphat had instead withdrawn the proposal.

The committee’s independence, as mandated by law, allows it to have the final say on matters related to the minimum wage. This revelation illustrates the policy-making challenges and the limitations faced by the government in altering decisions made by independent bodies established through statute.

The Prime Minister’s repeated insistence over the last few days of steering the economy towards a cleaner energy future and pursuing free trade agreements has added another dimension to the debate.

Srettha Thavisin contends that a higher minimum wage should not be an insurmountable obstacle for industry in Thailand. Moreover, the Prime Minister indicated that a radical shakeup in the levels of wages is what is required as an economic imperative. 

He talks instead of the need for economic policies that prioritise environmental sustainability and international trade.

Srettha admits the economy is in ‘crisis’ but insists that green, cleaner and more sustainable investment is the future for Thailand, not old industry

In contrast to this, however, in a recent interview, Prime Minister Srettha Thavisin elaborated on his concerns about the economy in 2024. He acknowledged the challenges posed by low wages and various economic issues.

When questioned about the potential impact of a higher minimum wage on inward investment, he maintained that investments in clean energy were of greater importance.

This attitude was taken further by Mr Pichai Naripthaphan, an adviser to the prime minister, who said that current wage rates could not cover workers’ cost of living.

Additionally, he insisted, the minimum daily wage should be the same in all provinces to avoid inequality.

‘An increase in the minimum daily wage naturally benefits the overall economy,’ he said. ‘Businesses will be able to adapt, apply more technology and enhance workers’ skills. These will boost the overall economy.’

New direction, if pursued, will have wider implications for the Thai economy as it battles against the ‘middle-income trap’ at a disadvantageous time

At length, the standoff over the minimum wage underscores the delicate balance Srettha faces between addressing workers’ demands and assuaging the concerns of business and industry leaders. 

The resolution of this issue will undoubtedly shape Thailand’s economic direction and its ability to navigate a competitive global landscape.

The complexity of the situation may heighten internal conflict within the government. Particularly between the Bhumjaithai Party, which controls the Labour Ministry, and the Pheu Thai Party, which leads the coalition.

The minimum wage issue is not merely a policy dispute; it represents a clash of interests at the top as Prime Minister Srettha Thavisin insists on a change in direction from the status quo and higher pay for workers across the Kingdom even if this means an end to core parts of the Kingdoms base economy which are dependent on unskilled labour at a low cost

Thailand is losing out to countries like Vietnam

As the country awaits the revised figures from the Labour Minister, the spotlight remains on the cabinet’s decision and the subsequent wider implications for the Thai economy.

Thailand is a developing country caught in what policymakers tried for over a decade to avoid, the ‘middle-income trap’.

That is where a second-generation economy, such as Thailand’s, fails to raise its income level or status when it can no lower compete in terms of labour costs with up-and-coming countries such as, for example, Vietnam, which has a younger workforce and higher education standard in addition to better free trade deals and access for its exports.

The current global economic slump is, perhaps, a difficult time to escape the middle-income trap, but then again, leadership must start somewhere.

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