Thailand's labor shortages underline deeper problems
From our survey on challenges faced by business owners, getting enough good people tops the list. Thailand's unemployment rate is vanishingly low, at just less than one percent. Labor shortages range across the spectrum of human resources, from the unskilled workers needed in construction sites to managerial positions. One might jump to the conclusion that this is economy that's just growing too fast.
ผู้เขียน: Sutapa Amornvivat, Ph.D.
From our survey on challenges faced by business owners, getting enough good people tops the list. Thailand's unemployment rate is vanishingly low, at just less than one percent. Labor shortages range across the spectrum of human resources, from the unskilled workers needed in construction sites to managerial positions. One might jump to the conclusion that this is economy that's just growing too fast.
Undoubtedly, demographic change is a factor. Thai society is aging fast, reflected in both a falling birth rate and the rising proportion of the populace that is aged 65 and over. To measure severity of the situation, one key indicator is the dependency ratio, which is defined as the number of Thais over the age of 65 divided by the number of those between the ages of 15 and 65. The ratio now stands at 0.14; it will double within 20 years. By then, every ten workers will be supporting three retirees.
Yet for now, unfavorable demographics is not the main culprit, and Thailand's economy is far from overheated. Instead, the shortages of human resources are a symptom of more complex problems that we urgently need to address in order to let the economy achieve its potential.
One indication of the complex labor problem is reflected in the 2013-2014 global competitiveness report published by the World Economic Forum (WEF), which ranks Thailand at 64th among 148 countries in terms of labor market efficiency. This is a broad indicator that reveals both how efficiently talent is employed in the economy as well as how flexible the nation's labor markets are in terms of letting employers hire or fire as needed.
Low labor market efficiency points in part to the low level of productivity in Thailand's fast-expanding "informal sector." This is the big part of the economy comprising the self-employed, very small businesses of fewer than five workers, and people working in family businesses without pay.
These kinds of jobs now account for 63% of all employment, mostly in agriculture. Of course, the informal sector provides many needed products and services, and serves as a cushion for workers during economic downturns. But growth of informal employment can shrink the pool of workers available for hiring.
What's surprising is that this sector has actually grown in Thailand in recent years, after many years of shrinkage. In 1990, the informal sector accounted for 75% of employment nationwide, but the share had dropped to 60% in 2004. Then the trend reversed. Even college-educated workers have been joining the informal sector in larger numbers. Today about 30 percent of workers with a college degree or higher have gone "informal," up from 22% a decade earlier, with most of them taking jobs in small shops and restaurants.
Rising prices for farm goods explains part of the phenomenon, because agricultural employment is predominantly informal. Since 2005, agricultural prices have risen by about 6.4 percent on average each year, whereas output prices in the manufacturing sector have risen just 2.4 percent a year. Service sector output prices have hardly changed. The faster rise in farm goods prices set the stage for a narrowing in the formerly wide wage gap between agricultural and non-agricultural sectors. A World Bank study found that among workers with only a primary school education, the wage "premium" paid to non-agricultural employees shrunk to 1.15 times the wage paid to farm workers in 2012, from 1.41 times in 2005. For workers with secondary education, the premium fell to 1.54, down from 1.74. So the attraction of non-farming pay has declined among low-skilled workers, leaving many businesses to resort to hiring foreign migrants for labor-intensive jobs.
Our expanding informal sector also underlines "skills mismatch" among many university-educated workers. This reflects education that is too low in quality or in a field of study that is not in high demand. The share of workers who have an undergraduate education or higher has risen steadily during the past decade. But some evidence suggests that the quality of training has not necessarily gone up for all. For example, the World Bank study shows that the gap in real wages between the 10th and the 90th percentiles among university-educated workers has widened significantly over the past decade. This suggests that the new additions to the university-educated pool of workers over the past decade are much more varying in quality.
Recent university graduates do not necessarily have the kinds of skills that employers in the formal sector expect. The WEF has ranked Thailand at 66th in terms of higher education and training, much lower than ASEAN neighbors like Malaysia (46th) and Singapore (2nd). Thailand's university graduates are heavily concentrated in the social sciences and humanities. The number of college graduates in science and technology is only about 24 percent of all graduates. This is problematic because technology-based fields like manufacturing and medicine have become increasingly important to the modern economy. As a result, many university-educated job seekers cannot find the kinds of positions they'd like to have in the formal sector, so they turn to the informal economy.
This trend is worrying, from an economic perspective. The informal sector currently accounts for about 30 percent of all employment for college-educated workers. Those jobs are mostly in sectors such as retailing and restaurants where not much capital is invested, and which therefore lack productivity-enhancing tools like high-tech machinery, sophisticated computers and software. And those workers will miss out on the opportunity to gain skills and experience that comes from working in the more capital-intensive formal sector. As skills stagnate, the economy underperforms its potential. Meanwhile, companies can't get the people they need.
But businesses and the government can take steps to improve the situation with better training and stronger incentives.
Real wages outside the agricultural sector have stagnated during the past decade. This reflects a low increase in labor productivity, partly because businesses are just not investing enough to increase productivity. Annual investment has, on average, accounted for about 22 percent of GDP since 2003, much lower than the preceding decade, when the level was about 30 percent. Companies need to upgrade their R&D, equipment and software to produce more competitive products and services.
In turn, universities and vocational schools along with the government need concerted action in delivering training of higher quality, and in fields of study that truly meet the needs of today's and indeed tomorrow's employers.
It is worth nothing that formal education only improves new additions to the workforce. Our existing workforce with skills mismatch necessitates urgent on-the-job training programs between responsible government agencies and willing businesses. Failing to do so, we risk forgoing a generation with higher productivity while our workforce is distressingly aging and imminently shrinking.