Does the minimum wage reduce wage inequality? Evidence from Thailand

Abstract

Most of the minimum wage literature in developing countries provides supporting evidence of its effectiveness in reducing wage inequality. Using minimum wage data from Thailand (1985Thailand ( -2010, I find rather mixed outcomes. The minimum wage seems to help compress the lower part of wage distribution for employees in large businesses. However, the effect does not extend to small and medium firms in the covered sector. In contrast with its role as a benchmark for wage adjustment in Latin America, the minimum wage in Thailand does not reduce overall wage inequality owing to the high non-compliance rate and weak law enforcement, particularly in the informal sector. JEL classification: J38; O17

Does the minimum wage improve the welfare of workers? Evidence from the 2013 minimum wage reform in Thailand

“…This suggests that the positive and significant impacts of the minimum wage reform on income and consumption are driven by non-poor households who earn higher wages even before the minimum wage reform. This finding is consistent with previous studies (e.g., Lathapipat and Poggi (2016), Leckcivilize (2015), and Del Carpio et al…”

“…This suggests that the positive and significant impacts of the minimum wage reform on income and consumption are driven by non‐poor households who earn higher wages even before the minimum wage reform. This finding is consistent with previous studies (e.g., Lathapipat and Poggi (2016), Leckcivilize (2015), and Del Carpio et al (2019)) indicating that the impact of the minimum wage has little and/or low impacts on the lowest‐earning workers, arguably due to high non‐compliance. Since the minimum wage is intended to protect newly‐hired workers, strong enforcement of the minimum wage laws should result in significant increases in income and consumption among low‐income households.…”

Features of the assessment of factors influencing productivity

“…It is difficult to replace the employees with high qualification and extensive work experience so the employers are forced to pay higher wages to keep these employees in their current workplace. The level of wages is also determined by external factors, which are divided into "legal/political, economic, social and technological" (Hossain et al, 2015;Leckcivilize, 2015;Litwin, 2015;Šilingienė et al, 2015;Pytliková et al, 2016), which are analysed at the sectoral level. External factors reflect the "ratio between supply and demand for skilled labour force".…”

“…Legal-political factors: determination of minimal payment rates, labour taxation policy (tax system), guaranteed bemefits, other labour relations, labour relations regulating payments, trade union activities and government policy. (Leckcivilize, 2015;Litwin, 2015;Šilingienė et al, 2015)…”

Minimum Wages and Wage Distribution in Thailand

“…Lathapipat and Poggi (2016) examined the impact of the minimum wage on male workers in the nonfarm private sector and found that the minimum wage had an impact on the 15-45 percentiles, while no impact was observed in the lower percentiles due to noncompliance by microenterprises. Leckcivilize (2015), in his study of male workers in the formal and informal sectors, found that in the formal sector, an increase in the minimum wage reduced wage inequality, while in the informal sector, wage inequality was not affected by the minimum wage due to noncompliance and weak enforcement of the law. Del Carpio et al ( 2019) examined the impact of the minimum wage on 15-to 60-year-old male workers in the formal sector from 2002 to 2013 and found that the minimum wage had a negative impact on the wage distribution in the 25th to 50th percentile.…”