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the differential effect of the minimum wage on employment

The Differential Effect of the Minimum Wage on Employment in Routine - - PowerPoint PPT Presentation

Nov 04, 2023 334 likes •1.02k views

The Differential Effect of the Minimum Wage on Employment in Routine Occupation in Thailand Attakrit Leckcivilize University of Aberdeen, UK Work-in-Progress, please do not cite without authors permission UNU-WIDER Development Conference,

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The Differential Effect of the Minimum Wage on Employment in Routine Occupation in Thailand

Attakrit Leckcivilize

University of Aberdeen, UK Work-in-Progress, please do not cite without author’s permission

UNU-WIDER Development Conference, UNESCAP 12 September 2019

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 1 / 35

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Motivation & Research Questions

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition?

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression Price (low-skilled & labour intensive sectors)

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression Price (low-skilled & labour intensive sectors) Profit, hiring, household consumption, poverty, etc.

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression Price (low-skilled & labour intensive sectors) Profit, hiring, household consumption, poverty, etc.

Issues in developing countries:

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression Price (low-skilled & labour intensive sectors) Profit, hiring, household consumption, poverty, etc.

Issues in developing countries: The role of covered and uncovered sectors or formal and informal sectors?

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 2 / 35

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Motivation & Research Questions

Research questions: Does the minimum wage affect employment depending on task composition? The minimum wage is one of the policy instruments with thorough researches in many aspects:

Employment (level VS. growth) / sub-groups Wage distribution / compression Price (low-skilled & labour intensive sectors) Profit, hiring, household consumption, poverty, etc.

Issues in developing countries: The role of covered and uncovered sectors or formal and informal sectors? Compliance and Effectiveness of the law enforcement

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Literature Review for Thailand

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Literature Review for Thailand

Minimum-wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education

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Literature Review for Thailand

Minimum-wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education Very small and insignificant among other labor market groups

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Literature Review for Thailand

Minimum-wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education Very small and insignificant among other labor market groups Minimum wage has large positive effects on the formal sector wages of low-earning workers, such as the young, elderly and low educated (Carpio, Messina & Sanz-de-Galdeano, 2018)

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Literature Review for Thailand

Minimum-wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education Very small and insignificant among other labor market groups Minimum wage has large positive effects on the formal sector wages of low-earning workers, such as the young, elderly and low educated (Carpio, Messina & Sanz-de-Galdeano, 2018) Large increases in 2012-13 weakly affected employment but improved the wage distribution (Lathapipat & Poggi 2016)

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Literature Review for Thailand

Minimum-wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education Very small and insignificant among other labor market groups Minimum wage has large positive effects on the formal sector wages of low-earning workers, such as the young, elderly and low educated (Carpio, Messina & Sanz-de-Galdeano, 2018) Large increases in 2012-13 weakly affected employment but improved the wage distribution (Lathapipat & Poggi 2016) The difference in compliance rate between large and small firms (not between covered and uncovered sectors) seems to be the prominent factor behind the fragmented effects of the minimum wage on wage inequality (Leckcivilize, 2015)

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Why the minimum wage policy can affect the informal wage and employment

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Why the minimum wage policy can affect the informal wage and employment

Labour movement between formal and informal sectors

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Why the minimum wage policy can affect the informal wage and employment

Labour movement between formal and informal sectors Relocation of capital from formal to labour intensive informal sector

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Why the minimum wage policy can affect the informal wage and employment

Labour movement between formal and informal sectors Relocation of capital from formal to labour intensive informal sector ‘Lighthouse effect’, a benchmark for “fair"remuneration

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Why the minimum wage policy can affect the informal wage and employment

Labour movement between formal and informal sectors Relocation of capital from formal to labour intensive informal sector ‘Lighthouse effect’, a benchmark for “fair"remuneration Changes in skill composition between formal and informal sectors ⇒ sorting of workers by skill could lead to higher average skills of workers in the informal sector

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Minimum wage in Thailand

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Minimum wage in Thailand

Introduced in April 1973 as minimum wage per day (in general = 8 hours) for private employees outside agriculture in Bangkok and adjacent cities

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Minimum wage in Thailand

Introduced in April 1973 as minimum wage per day (in general = 8 hours) for private employees outside agriculture in Bangkok and adjacent cities Expanded to cover the whole country and classified into 3 zones by geographic region in October 1974

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 5 / 35

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Minimum wage in Thailand

Introduced in April 1973 as minimum wage per day (in general = 8 hours) for private employees outside agriculture in Bangkok and adjacent cities Expanded to cover the whole country and classified into 3 zones by geographic region in October 1974 Since October 1981, it was set with respect to inflation, living standard, competitiveness, economic and labour market condition of each province

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 5 / 35

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Minimum wage in Thailand

Introduced in April 1973 as minimum wage per day (in general = 8 hours) for private employees outside agriculture in Bangkok and adjacent cities Expanded to cover the whole country and classified into 3 zones by geographic region in October 1974 Since October 1981, it was set with respect to inflation, living standard, competitiveness, economic and labour market condition of each province Number of zones increased dramatically from 3-4 zones during 1981-2001 to 8 in 2002 and 28 zones in 2010

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 5 / 35

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Minimum wage in Thailand

Introduced in April 1973 as minimum wage per day (in general = 8 hours) for private employees outside agriculture in Bangkok and adjacent cities Expanded to cover the whole country and classified into 3 zones by geographic region in October 1974 Since October 1981, it was set with respect to inflation, living standard, competitiveness, economic and labour market condition of each province Number of zones increased dramatically from 3-4 zones during 1981-2001 to 8 in 2002 and 28 zones in 2010 Two-step large increases in 2012-2013 led to a single minimum wage at 300 baht per day through out the country

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Real minimum wages of selected provinces 1981–2018 (Baht 2007 / day)

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Box Plot of Kaitz Index 2002 - 2018

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Minimum wage: enforcement and compliance in Thailand

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Minimum wage: enforcement and compliance in Thailand

Violation could result in being fined or imprisoned

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Minimum wage: enforcement and compliance in Thailand

Violation could result in being fined or imprisoned The maximum fine is sizable for small and medium firms

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Minimum wage: enforcement and compliance in Thailand

Violation could result in being fined or imprisoned The maximum fine is sizable for small and medium firms Yet the enforcement is questionable e.g. during 2006-2010, more than 94% of firms caught violating any labor law received only a warning while less than 0.3% of all wrongdoing establishments were fined or prosecuted

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Minimum wage: enforcement and compliance in Thailand

Violation could result in being fined or imprisoned The maximum fine is sizable for small and medium firms Yet the enforcement is questionable e.g. during 2006-2010, more than 94% of firms caught violating any labor law received only a warning while less than 0.3% of all wrongdoing establishments were fined or prosecuted However, in recent years, the non-compliance rate dropped from 10% to about 1-2%

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Minimum wage: enforcement and compliance in Thailand

Violation could result in being fined or imprisoned The maximum fine is sizable for small and medium firms Yet the enforcement is questionable e.g. during 2006-2010, more than 94% of firms caught violating any labor law received only a warning while less than 0.3% of all wrongdoing establishments were fined or prosecuted However, in recent years, the non-compliance rate dropped from 10% to about 1-2% This might reflect a tougher stand on such illegal cases by moving away from just a light touch like warning to an order of compliance or criminal action against the culprits

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Labor inspection in Thailand 2006 - 2017

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Data: Labour Market

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Data: Labour Market

Quarterly Labor Force Survey conducted by National Statistical Office

f Thailand from 2002Q1-2018Q1

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Data: Labour Market

Quarterly Labor Force Survey conducted by National Statistical Office

f Thailand from 2002Q1-2018Q1

The sample covers all workers in private, public, self-employed and unpaid workers in family business who report their number of hours worked per week and occupation (missing information on occupation in 2007Q2, 2013Q2 and 2015Q2)

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 10 / 35

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Data: Labour Market

Quarterly Labor Force Survey conducted by National Statistical Office

f Thailand from 2002Q1-2018Q1

The sample covers all workers in private, public, self-employed and unpaid workers in family business who report their number of hours worked per week and occupation (missing information on occupation in 2007Q2, 2013Q2 and 2015Q2) The survey also has information on wages and compensation (bonus,

ver time, clothes, etc.) for wage earners

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 10 / 35

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Data: Labour Market

Quarterly Labor Force Survey conducted by National Statistical Office

f Thailand from 2002Q1-2018Q1

The sample covers all workers in private, public, self-employed and unpaid workers in family business who report their number of hours worked per week and occupation (missing information on occupation in 2007Q2, 2013Q2 and 2015Q2) The survey also has information on wages and compensation (bonus,

ver time, clothes, etc.) for wage earners

Sample size for the whole country in each quarter is 100,000+

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 10 / 35

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Data: Labour Market

Quarterly Labor Force Survey conducted by National Statistical Office

f Thailand from 2002Q1-2018Q1

The sample covers all workers in private, public, self-employed and unpaid workers in family business who report their number of hours worked per week and occupation (missing information on occupation in 2007Q2, 2013Q2 and 2015Q2) The survey also has information on wages and compensation (bonus,

ver time, clothes, etc.) for wage earners

Sample size for the whole country in each quarter is 100,000+ The data is aggregated to provincial level of 76 provinces to create a panel dataset for province-quarter

Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 10 / 35

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Data: Task information

Based on O*NET task data for occupations (Dorn, 2009) Using crosswalks occupations in Dorn (2009) and the ISCO classification, particularly the ISCO-88 and ISCO-08

From Gorka et al. (2017) Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 11 / 35

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Routine Task Index Movement in Thailand

From Lekfuangfu (2017) Leckcivilize (University of Aberdeen) Minimum Wage & Task Composition 12/09/19 12 / 35

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Ratio of Routine Occupations (Workers)

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Ratio of Routine Occupations (Formal sector)

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Ratio of Routine Occupations (Informal sector)

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Methodology

Follow Meer and West (2016) who argue that the minimum wage may impact employment over time through changes in employment growth rather than affect the level

f employment in a discrete manner

First-Difference regression with distributed lags with provincial linear trends can be specified as: ∆yit = αt + µi +

k

s=0

βs∆mwit−s + γ∆controlit + ∆εit ∆yit is a difference between period t and t-1 of a natural log of total employment in province i by various sub-groups, i.e. all workers, wage employees in both private and public sectors, self-employed and unpaid family workers ∆mwit−s is a difference in log of the nominal minimum wage in province i between period t-s and t-s-1 controlsit are log population and share of adults aged 15-59 αt and µi are time and provincial fixed effects ⇒ Clustering standard errors at provincial level

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Results: All occupations overall and formal sector 2002-2018

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Results: All occupations informal sector 2002-2018

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Results: Routine occupations 2002-2018

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Results: Routine occupations Female 2002-2018

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Results: Routine occupations Male 2002-2018

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Results: Routine occupations Urban Area 2002-2018

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Results: Routine occupations Rural Area 2002-2018

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Results: All occupations overall and formal sector 2009-2018

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Results: All occupations informal sector 2009-2018

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Results: Routine occupations overall & formal 2009-2018

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Results: Routine occupations informal 2009-2018

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Results: Routine occupations Female 2009-2018

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Results: All occupations overall and formal sector 2002-2009

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Results: All occupations informal sector 2002-2009

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Results: Routine occupations overall & formal 2002-2009

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Results: Routine occupations informal sector 2002-2009

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Results: Routine occupations by Gender 2002-2009

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Discussion

The impact of minimum wage on employment in Thailand is characterized by:

Distinction between formal and informal sectors (wage employees in private and public sectors versus self-employed and unpaid family workers) and interactions between the two And the size of the hikes

Only large increases in minimum wages lead to significant changes in employment growth with a reduction in the informal sector but an expansion in the private sector employment The findings could be explained by a combination of two-sector model (Gramlich-Mincer-Welch; 1974, 1976) with substantial monopsony power of private firms in the formal sector (Manning, 2003) Large increases => Loss in mainly routine private sector jobs

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Future works

Potential robustness checks

Using annual data to mitigate seasonal variation Additional controls e.g. Gross Provincial Products (only annually) Different specifications and Falsification tests

Future works could focus differential between genders and rural vs. urban What happen to the non-routine as well as cognitive occupations? Were there really any extra investment in capital to substitute routine workers? Thank you for your attention

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