EFFECTS OF ASEAN ECONOMIC COMMUNITY ON ECONOMY AND LABOR MARKET: THE CASE OF THAILAND

Abstract

The ASEAN Economic Community (AEC) will establish at the end of 2015. The main objective is to integrate region economies to become a single market and production base. This study attempts to estimate the impact of AEC on Thai economy and labor market in Thailand and to suggest the appropriate policies to sustain Thai economy in the long run by using the static single-country computable general equilibrium (CGE) model and the dynamic multi-countries CGE model. The study consists of 3 main research questions. How large is the impact of AEC on economy and labor market of Thailand. How large is the impact of wage policies on economy and employment of Thailand as a part of AEC. Lastly, how large is the impact of switching cost and labor productivity on Thai economy as well as what is the relationship between AEC and switching cost. For the first research question, the study estimates that AEC could enhance real GDP of ASEAN economies and every ASEAN country will have a better growth path under AEC. Most of these benefits result from the integration effects of zero tariff, more investment, and cheaper trade cost. For the second research question, the minimum wage in Thailand is an important topic for debate with labor representatives seeking an increase in the minimum wage. The study’s result indicates the negative correlation between minimum wage and GDP as well as minimum wage and employment due to higher cost of production. Therefore, whether increased minimum wage or subsidy wage policies are not appropriated for Thailand as a part of AEC because these policies would reduce investment and human capital accumulation, unless labor productivity is enhanced to compensate the negative effect from these policies. Although decreased minimum wage leads to the increases in GDP, investment, and employment for both skilled and unskilled labors in every sector, it is politically hard for politicians who want votes from the public. The study provides various measurements of adjustment both minimum wage and labor productivity. The rest is for policy maker to decide how much minimum wage to increase in accordance with market conditions. For the third research question, the study shows the existence of the systematic pattern of domestic migration in Thailand’s labor market, which conforms to Harris-Todaro’s theory of expected wage equilibrium. Moreover, the empirical analysis shows that there exists the consistent range of switching cost which is the cost incurs when labors move from agricultural to non-agricultural sectors. Based on these key findings, the government programs supporting the reduction of switching cost and increased labor productivity are the top-priority tasks and should implement both of them in order to sustain the economic growth. In addition, the simulation result also indicates that better economic situation which results from AEC leads to higher switching cost because labor prefers not to change job. This effects is positive to firms’ business because they do not have to pay frequently for training program.