Effect of minimum wage increase on employment and wage levels

Abstract

We assess the employment and wage effects of the minimum wage increase in Thailand. We first explore the effects in the private non-agricultural sectors, which is covered by the minimum wage legislation, by exploiting the geographical variation in the minimum wages across provinces. Using difference-in-differences (DD) approach we assess whether the provinces where the minimum wage increase “bites” strongly into the provincial wage distribution exhibit a greater impact on the provincial labour market. Subsequently, we disaggregated the analysis by conducting pairwise comparison of adjacent provinces in four distinct regions. We found that an increase in minimum wage is associated with an increase in employment but not with wage levels in the covered labour market. In addition, the results for employment level are relatively consistent when we disaggregated the analysis for both covered and uncovered labour markets. Lastly, we show that the minimum wage change may have caused uncovered government employees including state-owned enterprises to enter the covered sector. At the same time, we also observed an increase in proportion of private agricultural workers in the economy, suggesting that more workers have entered this sector.