Chapter 5

wages and protected by the Labour Protection Law. They are also covered by many forms of social security programs. In 1994, more than half of the employed ...
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Labour Market Issues in Thailand Worawan Chandoevwit Thailand Development Research Institute

General Thai labour market characteristics The Thai labour market can be characterized as a segmented labour market, i.e. the formal and informal labour market. Labours who work in the formal market get higher wages and protected by the Labour Protection Law. They are also covered by many forms of social security programs. In 1994, more than half of the employed (17.8 millions) were working in agriculture sector. As the labour force is dominated by agriculture sector, the following discussion will focus on labour force activities in quarter three when it is the agriculture season.1 In the same year, the manufacturing, commerce and service sectors employed approximately 12 percent each (3.6-3.9 millions) of total employment (32 millions). With a high growth rate of employment in the commerce sector, its employment share increased to 17 percent in 2002, which is higher than the employment shares of manufacturing and service sectors. Employment in agriculture was 15.8 million workers, 50 percent of total employment, in 2002. Table 1 Labour Force by Industry (thousand) Total labour force Economically active population Employed Breakdown by sector: Agriculture Manufacturing and mining Construction Utility Commerce Transportation Services Unemployed Seasonally inactive labour force Economically inactive population

1995 32,750 32,702 32,339

1996 32,603 32,442 32,093

1997 33,194 33,090 32,797

1998 33,254 33,177 32,047

1999 33,106 32,969 31,991

2000 33,849 33,690 32,882

2001 34,526 34,418 33,523

2002 35,029 34,938 34,322

16,748 4,409 1,843 168 4,075 987 4,109 363 49 10,164

16,030 4,368 2,162 143 4,348 956 4,086 349 162 11,011

16,464 4,316 2,004 177 4,557 974 4,305 293 104 11,135

16,387 4,225 1,282 178 4,467 925 4,583 1,130 77 11,798

15,487 4,436 1,285 158 4,745 990 4,889 979 136 12,676

16,021 4,813 1,277 172 4,798 951 4,850 808 159 12,646

15,451 4,787 1,408 101 5,432 977 5,366 895 108 12,576

15,843 5,080 1,620 96 5,510 964 5,209 616 91 12,687

Source: Based on the Labour Force Survey (round 3). The Thai labour market is slightly dominated by male workers. In 1994, male workers accounted for 54 percent of the total labour force or 17.7 million male workers from 32 million workers. In 2002, male workers increased to 19.3 millions whereas total labour force was 35 millions. Data from the Labour Force Survey (LFS) show that the male labour force participation rates are always higher than those of female.2 In 1991, labour force participation rates for male and female workers were 92 and 74 percent. The

1

The data on the Thai labour market are mainly from the Labour Force Survey (LFS). The survey has been conducted, by the National Statistical Office (NSO) since 1963. Round one and three of the survey represent the survey conducted in February (dry season) and August (Wet Season). 2

The labour force participation rate is the percentage of people age 15 and above who are employed and unemployed (who are in labour force) to people age 15 and above who do not attend school and ready to work. 1

gaps between male and female labour force participation rate were 17-19 percentage points. In 2002, the male and female labour force participation rates were 89 and 70 percent. The labour force participation rate of the female workers is high in round 3 of a year or in the wet season. Female workers are more likely to participate in the informal sector than male workers.

Labour Force Participation

95 90

%

85 80 75 70

Male

2001

1999

1997

1995

1993

1991

65 Year

Female

In 1994, approximately 9 percent of labour force (or 3 millions) were in age group 15-19. As the birth rate has declined and more young people attended school, the number and proportion of labour force in this age group has reduced. On the contrary, labour force in the age group above 50 has increased.

Table 2 Labour Force by Gender, Age Group, Education, and Region 1995

1996

1997

1998

1999

2000

2001

2002

32,750

32,603

33,194

33,254

33,106

33,849

34,526

35,029

Male

17,827

17,881

18,109

18,272

18,256

18,604

19,040

19,302

Female

14,923

14,723

15,085

14,982

14,849

15,245

15,487

15,728

15-19

2,776

2,455

2,255

2,157

1,912

1,956

1,958

1,756

20-29

9,423

9,368

9,479

9,304

9,130

9,092

9,260

9,263

30-39

8,752

8,793

8,971

8,988

9,062

9,177

9,286

9,452

40-49

6,193

6,428

6,714

6,932

7,113

7,346

7,527

7,715

50-59

3,832

3,842

3,916

4,022

4,064

4,272

4,349

4,584

60+

1,773

1,717

1,858

1,851

1,824

2,006

2,146

2,259

Primary or lower

25,469

24,998

24,838

23,542

22,965

22,995

22,852

22,897

Lower Secondary

3,010

3,316

3,475

4,095

4,096

4,390

4,443

4,580

Upper Secondary

1,097

1,029

1,234

1,471

1,682

1,915

2,152

2,431

Lower Vocational

879

893

956

1,024

974

1,024

1,134

1,130

Higher Vocational and Diploma

785

727

797

979

1,048

1,089

1,202

1,237

1,510

1,640

1,894

2,144

2,341

2,436

2,744

2,754

Bangkok and metropolis

3,686

3,770

4,035

4,075

4,061

4,264

4,430

4,449

Central

7,318

7,368

7,459

7,573

7,614

7,747

7,928

8,112

North

6,363

6,272

6,238

6,341

6,417

6,436

6,478

6,444

Northeast

11,394

11,174

11,386

11,144

10,820

11,212

11,339

11,609

South

3,989

4,019

4,076

4,121

4,194

4,190

4,351

4,416

Total labour force Classified by gender

Classified by age group

Classified by education

University Classified by region

Source: Based on the Labour Force Survey (round 3).

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Table 2 shows that most of the Thai labour force have low education level and live in the northeastern and central part of the country. In 2002, approximately 71 and 14 percent of labour force had primary education and lower secondary education. This composition of the labour force might make it more difficult for Thailand to move into an advanced economy and be competitive in the globalization environment. The shares of labour force in Bangkok and surrounding provinces have been declining. This might imply that more economic activities have expanded to the region. The share of employment in northeastern region has increased from 22 percent in 1994 to 36 percent in 2002. Dualism

2002 Q1

2001 Q1

2000 Q1

1999 Q1

1998 Q1

1997 Q1

1996 Q1

1995 Q1

1994 Q1

1993 Q1

1992 Q1

16 14 12 10 8 6 4 2 0 1991 Q1

million.

Workers in the formal sector in Q1 and Q3

Y-Q

Non-agr Employer Non-agr employee-large and medium firms Non-agr employee-small firms State-enterprise employee Government employee

2002 Q1

2001 Q1

2000 Q1

1999 Q1

1998 Q1

1997 Q1

1996 Q1

1995 Q1

1994 Q1

1993 Q1

1992 Q1

16 14 12 10 8 6 4 2 0 1991 Q1

million.

Workers in the informal sector in Q1 and Q3

Y-Q

We define workers in the formal sector as those who work as government employees, stateenterprise employees, and private employees and employers in nonagriculture sector since these workers are protected by the labour protection law and receive many kind of social insurance. Those who work in the formal sector face some kinds of barrier to entry such as they should have high education level, should be able to access some job related information, may have good networking or should have land ownership. Some might say that private employees in the small firms employing 10 or less workers should be in the informal labour market as they are in the perfectly competitive labour market. Since the private employees in the small firms are protected by the Labour Protection Act and the Social Security Act, same as the medium and large firms, we consider them being in the formal labour market in this discussion.

Workers in the formal sector accounted for 34 percent of the labour force in 1991 and increased to 44 percent in 2002. The seasonal patterns of the number of workers in the formal sector is mainly caused by seasonal mobility of labours in private enterprises, especially those in the medium and small firms. The unskilled workers move from the formal sector to the informal sector, specifically agriculture sector, in quarter three of the year or in August. Since the unskilled and agriculture labour markets are the free-entry competitive markets, the movement between two sectors is normal. However, the Thai labour market development has transformed Non-agr Employer Non-agr employee-large and medium firms Non-agr employee-small firms State-enterprise employee Government employee

3

more and more labour into the formal sector where there is barrier to entry. The cost of moving between the two sectors has increased. As a result, the difference of the number of workers between quarter one and three becomes smaller. The share of workers in the informal sector was almost 70 percent in 1991, but has decreased to be less than 60 percent in 2002. Self-employed are the main work status for the informal sector. The number of self-employed ranged between 10-11 millions. The unpaid family workers are the second largest group in the informal sector. This type of worker is strongly determined by agricultural season. The number of unpaid family workers each year reached the peak in quarter three. Most workers in this group are female. Unemployment Unemployment in Q1 and Q3 1.8 14

1.4

12

1.2

10

1.0

8

%

million.

1.6

0.8

6

0.6 4

0.4

Unemployed

2002 Q3

2002 Q1

2001 Q3

2001 Q1

2000 Q3

2000 Q1

1999 Q3

1999 Q1

1998 Q3

1998 Q1

1997 Q3

1997 Q1

1996 Q3

1996 Q1

1995 Q3

1995 Q1

1994 Q3

1994 Q1

1993 Q3

1993 Q1

1992 Q3

1992 Q1

0 Y-Q

1991 Q3

2

0.0 1991 Q1

0.2

Unemployment rate

The unemployment rate of the Thai labour force is quite low compared to the OECD countries. Quarter three of the year always shows a lower unemployment rate than quarter one. The average unemployment rate in 199197 was 2.2 percent and in 1998-2002 was 3.5 percent. The number of unemployed was lowest (0.3 million unemployed workers) in quarter three of 1997. The number of unemployed hit the highest point in quarter one of 1999 where 1.7 million workers were out of work. Wages

Average monthly wages

2002 Q1

2001 Q1

2000 Q1

1999 Q1

1998 Q1

1997 Q1

1996 Q1

1995 Q1

1994 Q1

1993 Q1

1992 Q1

1991 Q1

Baht

Workers in the informal sector earn lower wages than those in the formal sector. Private employees in agriculture earned 1,569 Baht (US$40) per month in quarter one of 1991 but private employees in non-agriculture Y-Q earned 92 percent higher (3,019 Baht or US$75 per month). The gap between agriculture and non-agriculture wages Non-agr worker (1998 prices) Agr worker (1998 prices) was wider in 2002. In quarter one of Non-agr worker (market prices) Agr worker (market prices) 2002, non-agriculture workers earned 6,201 Baht per month, 137 percent higher than agriculture wages. During the period of 1991-2002, the average quarter-onquarter growth of monthly wage for non-agriculture worker was 6.69 percent and for agriculture worker was 5.33 percent. The non-agriculture workers only experienced a negative growth rate of wages once in quarter three of 2002 (as the quarter-on-quarter growth rate was -1.69 percent). However, agriculture workers had to bear with negative growth of wages from quarter three of 1998 to quarter one of 2000 and from quarter one of 2001 to quarter one of 2002. Their monthly earnings were lower than working for a minimum wage for 22 days in a month. The figure also shows that the real wage of 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

4

Minimum wage rate for Bangkok

190 170

Baht/day.

150

agriculture workers was highest in 1997 and declined afterward. Real wages of non-agriculture workers in 2002 were about the same as those in 1997. Minimum wage

130

The minimum wage law in Thailand has been enforced since 1972. 90 At the beginning, the minimum wage 70 law was enforced only in Bangkok and 50 Year 1990 1992 1994 1996 1998 2000 2002 Metropolis. Later in 1974, it started Minimum wage At 1998 prices enforcing nationwide. At that time, the national committee set the minimum wage rates into three areas; Bangkok and metropolis, the 38 big provinces and other small provinces. The amendment of the labour protection law in 1998 allowed the minimum wage (tripartite) committee to adjust the minimum wage in each area based on the cost of living, inflation, standard of living, cost of production, firms’ competitiveness, labour productivity, GDP and other economic and social conditions. In 2004, there were 14 levels of the minimum wage, ranging from 133 to 170 Baht. 110

The minimum wage rate for Bangkok and metropolis grew very fast in 1991-1996, with the highest annual growth rate of 15 percent in 1992. The rates were slightly adjusted after the crisis, with the annual growth rate of 1 percent in 1997-2003. The real minimum wage, however, moved in the opposite direction with the nominal minimum wage. They reduced by 5.3 percent in 1997 and 4.6 percent in 1998. During the period of 1997-2003, the real minimum wage has a growth rate of -1.7 percent on average. Data from the LFS in quarter 3 of 2003 show that 36 percent of private employees earn below the minimum wage. Among these employees, approximately 62 percent worked in the firm employing 1-9 workers, 78 percent contained primary education or lower, 52 percent are female, and 41 percent worked in the agriculture sector. Labour protection and welfare As the member of the International Labour Organization (ILO), Thailand has tried to comply with ILO conventions on International Labour Standard. In 1975, in the period of democracy boom, the first labour protection law was enacted. With the changing environment and labour market dynamism, the labour protection law was amended. At present, Thai workers are under the Labour Protection Act B.E. 2541 (1998). The Act protects workers in term of the general right of employees, working hours, women workers, child labour, wages and other payments, holidays and leave, minimum wage committee, labour welfare, occupational safety, severance pay, complaint for fairness, Labour Welfare Fund and other regulations and punishment. The Act, however, does not cover government and state enterprise employees, and other employees in agriculture industry and home based workers. Other forms of welfare for workers are the contributory social security schemes under two laws; the Social Security Act B.E. 2533 (1990) and Workmen’s Compensation Act B.E. 2537 (1994). The social security schemes provide sickness, maternity, invalidity, death, old age, and survivor benefits, and child allowance to employees in non-agriculture employees working in firms with 10 or more workers. In 2002, the coverage of the social 5

% of employees receiving severance pay

security schemes was extended to non-agriculture employees in all firm size. Moreover, in 2004, the unemployment insurance program is enforced. At present, employees and employers contribute 5 percent and government contributes 2.75 percent of insured earning for the benefits under the Social Security Act. Employers contribute 0.2-1 percent of insured earning for the benefits under the Percentage of laid-off employee receiving Workmen’s Compensation Act. At the end severance pay of September 2003, there were 7.35 million insured persons and 320 thousand registered NOTHING 1-3 MONTHS 94.8 100.0 enterprises. 90.0

79.3

4-6 MONTHS

6+ MONTHS

The enforcement of the social security laws and the labour protection law 60.0 50.2 50.0 has been inefficient. The Labour Force 32.7 40.0 Survey and administrative data show that in 30.0 18.7 20.0 2001 many employees were not covered by 8.2 10.0 2.0 0.0 1.5 0.5 0.3 0.7 the social security system. About half of 0.0 0-9 10-99 100+ employees in the northeastern region and in Firm size (number of workers) the construction sector were excluded from the social security system. Only 60 percent of employees working in the firms with 10-99 workers were covered. Moreover, the special module of the Labour Force Survey in 1998 shows that approximately 95, 80 and 50 percent of laid-off workers in firms with 1-9 employees, 10-99 employees and 100 and more employees, respectively, received no severance pay as enforced by the Labour Protection Act. 80.0 70.0

It can be said that private employees get unequal treatment from the social security and labour protection laws. Employees in agriculture industry and home based workers receive no social security benefits and are not protected by law. Working in the hazardous environment, agriculture workers also earn lower wages. The Thai government should pay more attention on the extension of the social security benefits to these workers. Unionization Private enterprise and state enterprise employees had the right to form labour unions under the Labour Relations Act B.E. 2518 (1975). The Act states the regulations for employer and employee to form union, association, and federation. State enterprise employee unions were considered to have strong unions before 1991 when the National Peacekeeping Committee staged a coup and announced martial laws. After 1991, state enterprise employees are not allowed to form union and be member of any labour union. Moreover, Article 19 of State Enterprise Employee Relations Act B.E. 2534 (1991) prohibits state enterprise employees to strike in any circumstances. In 1990, there were 713 labour unions, 129 of which were formed by state enterprise employees. After an amendment of the law in 1991, state enterprise employees could setup only 36 associations. On the contrary, private employees formed more labour unions from 1991 to 1996. The number of unions decreased by 5 percent in the year of financial crisis and increased after that. The Labour Force Survey in round 3 of 1998 shows that only 2.9 percent of wage earners in private sector were members of a labour union. This proportion is quite low compared to other countries. In Malaysia, the Philippines and South Korea, about 9, 11

6

and 11.2 percent of labour force were members of a labour union in 1998.3 The low rate of unionization could be from the lack of labour protection while forming a union and a free rider problem (Behrman, 2000). It stated in the Act that the negotiated results were also applied to the non-member of the union. Table 3 Number of Labour Unions and Associations Year

No. of state enterprise employee associations

No. of labour unions

1998

45

999

1999

44

1,056

2000

44

1,084

2001

45

1,123

2002

44

1,160

Source: Yearbook of Labour Statistics

However, the rate of unionization will increase in the near future since a new State Enterprise Employees Relations Act has been enforced in 2000. According to the Act, at least 10 employee can initially setup a union. After an establishment of the union, the union members must compose of at least 25 percent of state enterprise employees. This new Act was, however, the result of the collective bargaining of AFL-CIO, ICFTU and the Thai labour unions. As the Thai labour unions coordinate with the international labour unions, we expect that they will negotiate the government on the issues of labour standard and welfare and anti-globalization other than only on the minimum wage rate as they usually did in the past. Immigrant worker Immigrant workers in Thailand are composed of the skilled and unskilled workers. The skilled immigrant workers enter the Thai labour market legally. They are mostly in the firms under the Board of Investment’s industrial promotion. Approximately 70 percent of them are professional managers and technicians and 20 percent are from Japan. In 2002, there were approximately 71 thousand skilled immigrant workers in Thailand.4 It can be said that Thailand has gained from having these workers as they filled the labour shortage in the areas. The immigrant worker that generates high economic benefit as well as social cost to Thai economy is the unskilled immigrant worker. Most of the unskilled immigrant workers are illegal and work in the fishing industry, low standard factories and farms. Many immigrants work as house-mates. These workers are not protected by the Labour Protection Act and other social security law. As they are illegal workers, they are exploited. Their working conditions are poor and their wages are low. The inequality 3

Behrman, Jere R., Anil B. Deolalikar, Pranee Tinakorn and Worawan Chandoevwit (2000) “The Effect of the Thai Economic Crisis and of Thai Labor Market Policies on Labor Market Outcomes,” TDRI. 4

Yongyuth Chalamwong, Jakrit Jiraratwaro and Kanyarat Kittisarnwuthivet (2003) “Foreign Migrant Worker Employment and Human Security,” A document for Year-End Conference 2003, Thailand Development Research Institute. 7

pressure might be the reason for a high crime rate that workers have done to their employers. The Thai government has had no clear policy to manage the shortage of unskilled workers and the unskilled immigrant workers. The temporary measure was conducted in 2001 when the government allows illegal immigrant workers to register with the Department of Employment. Workers had to pay registration fee that costs them 1,200 Baht (or US$ 30). This amount was used for immigrant worker’s healthcare. The registered immigrant workers will loss their work status and become illegal workers if they resign from their current employer. As the consequence of the policy, there were 568 thousand registered unskilled immigrant workers. It was estimated that approximately one million immigrant workers were left unregistered. The nonexistence of the clear immigrant worker policy generates the high social cost while the employers have enjoyed the private benefit. Employers gain from low labour cost and high profit. However, public has to bear the healthcare and education cost of illegal workers and their families. In 2002, the Ministry of Public Health bore the cost of 115 million Baht (approximately US$ 2.9 million) of the unpaid bill made by the immigrant workers. Moreover, the Ministry of Education provided free formal education to 151 thousand non-resident children (or children without nationality). It is expected that many non-resident children were left without education and many immigrant workers could not afford medical treatment. A good policy on immigrant workers should be initiated to improve immigrant workers’ well-being and to impose the undistorted cost to the employers and public.

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