Analysis: SE Asian governments gamble on making cheap labor less cheap

Fri Dec 7, 2012 4:53am EST
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By Alan Raybould

BANGKOK (Reuters) - After years of profiting from cheap labor, Southeast Asian businesses paying wages low enough to undercut China are being forced to accept it is time they paid people a bit more.

In Thailand, minimum wages will jump by 35 percent in some regions from January, on top of a nationwide increase of 40 percent last April. Big percentages that add up to just a few dollars more in pay packets each month.

The country's finance minister says it will be good for workers and industry.

"People getting higher wages will not want to lose their jobs and employers will not want to increase wages for nothing. They will have to work together to boost efficiency and productivity," Kittirat Na Ranong told Reuters this week.

Economists also point out that if you pay people more they'll buy more. But the nagging worry is that everyone could eventually lose out if wages rise too fast, resulting in higher inflation and job losses as firms lose competitive edge.

While the political benefits are easy to see in a region where a vast majority of people are clamoring for a better life, the economic calculation is a harder sell to a business community whose margins depend on cheap labor.

The chairman of the Federation of Thai Industries was ousted last month for failing to lobby hard enough to convince the government to go back on a promise to voters, and the surrender to higher wages left the federation riven with factions.

Similar social and economic tensions are evident elsewhere in Southeast Asia, a region that has otherwise come through the global slowdown better than most.   Continued...

Employees work in an automobile spare parts factory in Ayutthaya province, north of Bangkok December 7, 2012. The emerging market boom that characterised the first decade of the millennium saw growth rates surge and profits multiply, but now countries such as Thailand, Indonesia and Malaysia face pressure from workers for a bigger share of the wealth. To match Analysis ASIA-WAGES/ REUTERS/Sukree Sukplang