The context: the changing labour force structure

(4.3.3). Links between wages and firm size are explored in 4.3.4. The wage distribution is described in 4.3.5 and static and dynamic decomposition analyses are used to understand the links between wage inequality and the firm size distribution in 4.3.6.

4.3.1. Data description

We use household data from the Thai Labour Force Survey (LFS) 1995 and 2005.

The LFS surveys are the most complete source of information about labour force dynamics in Thailand. The samples are representative of the entire population, which included about 31.1 million active labour force participants in 1995 and 34.4 million in 2005.

The LFS surveys did not ask self-employed workers to provide additional information about their firms, meaning that no information is available on firm size or other characteristics for firms without employees. This affects our understanding of the firm size distribution – workers from one person enterprises and from small or family-run businesses that don’t pay wages, are omitted from the analysis.⁹¹ However, the self-employed and employers earn no wages, so these firms could not, in any case, be included in an analysis of wage inequality.

Further analysis would be needed to understand the impact of incomes from self-employment and family businesses on overall income inequality. Government workers are also excluded. Although these workers report wages, the question of firm size is difficult to apply to the public sector.⁹²

Another limitation of the LFS is that the firm size variable is discrete, rather than continuous. This choice may well be justified, if respondents find it easier to give an answer within a range, leading to fewer missing values. But, it makes comparison with other sources, which use different cut-offs for firm size groups, difficult. This is particularly true for the 1995 LFS, where the upper group covers all firms with 100 or more employees. However, the analytical techniques used are compatible with discrete data, and we believe that the size categories provide sufficient detail to give a meaningful insight into the questions at hand.

Throughout the analysis we use frequency weights, which reflect the number of workers represented by each observation. This means that our results reflect the importance of firms and firm size from the perspective of workers – this is considered most appropriate for analysis of wage inequality.⁹³

4.3.2. The context: the changing labour force structure

91 The same problem is acknowledged by other authors, for example Wiboonchutikula (2002).

92 This question could be applied, in theory to state-owned enterprises. However, as these enterprises may differ in many ways from private sector firms we have excluded them from the analysis. As they account for a very small proportion of employment this makes no substantive difference to our results.

93 The alternative option would be to weight the observations by the number of firms they represent.

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The changing structure of the Thai labour force is important context for our analysis. Table 4-1 shows the distribution of the labour force of Thailand by status, industry, and region in 1995 and 2005. It should firstly be noted that between 1995 and 2005 the size of the active labour force increased in all regions, from 31.1 to 34.4 million in total. Much of this change was likely related to the fact that the working age population increased faster than the overall population, so the country experienced a ‘demographic dividend’. Several sources have noted the contribution of demographic change to economic growth in Thailand (for example, Mason and Lee, 2006).

Regional shifts between 1995 and 2005 do not appear large. Bangkok’s share in the labour force fell slightly, more than compensated by a rise in the share of the surrounding Central region. The share of the Southern region rose very slightly, while the other regions fell slightly. This relatively muted change over a ten year period seems surprising, given that substantial migration flows have been documented away from rural and remote areas and towards Bangkok and the surrounding region (as reviewed in Punpuing and Richter, 2011). It is likely that the financial crisis of 1997/8, which was felt disproportionately in Bangkok, played a role in slowing, and even reversing, migration during the period studied.

Punpuing and Richter (2011) find evidence for a substantial rise in urban-rural migration during the crisis. These ‘reverse’ migration flows continued after the crisis and even increased in 2002. It is also possible that the LFS underestimates migration, if some unregistered or temporary migrants are excluded from the sample. Other factors, such as an increase in the rate of enrolment in tertiary education, could also have contributed to a fall in the economic activity rate in Bangkok. The finding that the share of the Central region rose is also consistent with the findings of Punpuing and Richter (2011) who found, using a national survey of migration, that workers migrated to the Central region rather than to Bangkok during this period.

We also observe a substantial increase in the share of private employees in the labour force, by around 8 percentage points, and the decrease in the share of unpaid family members, by almost 10 percentage points. As the size of the labour force increased, the findings in Table 4-1 imply that more than 3.6 million additional jobs in private companies were added to the economy – new labour force entrants and, possibly, previously unpaid family employees have been absorbed into the private sector.⁹⁴ About 1.2 million more people were self-employed. Over the same time period, the number of unpaid family workers fell by 2.4 million. There was a slight increase in the proportion of individuals who reported being an employer or government employee and a slight decrease in the proportion of persons working in state enterprises.

94 It is not possible to tell, using these data, whether these jobs were provided by new firms entering the market, or through expansion of existing firms.

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Structural change was also pronounced. The proportion working in agriculture fell in all regions apart from Bangkok – where agricultural activity is insignificant – by seven percentage points overall. Industry and services expanded by 2 and 7 percentage points respectively. Bangkok was the only exception to this pattern. In 1995 the city already had a sizeable industrial base, accounting for 41 percent of the labour force. Between 1995 and 2005 the structure shifted towards services, which by 2005 accounted for 68 percent of employment.

Table 4-1: Overview of labour force structure by status, industry, and region (percent)

All Bangkok Central Northern Northeastern Southern

1995 2005 1995 2005 1995 2005 1995 2005 1995 2005 1995 2005

Source: Author’s computations based on LFS 1995 and 2005.

The period was also characterized by a significant increase in the education level of the workforce. The share of the labour force with at least secondary education has increased in all regions, while the proportion with elementary or less than elementary fell across the board. There was a slight increase in the proportion with no education in Bangkok (from a very low base) and the Northern region, and a more substantial increase in the Central region, possibly because the area has seen an influx of uneducated workers from other regions. Bangkok saw a

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particularly significant rise in the proportion of workers with post-secondary education. By 2005 these made up about 31 percent of the workforce.