Lack of skilled labour is a pressing issue for Thai employers

Author: Poorna Rodrigo | Date: 1 Nov 2016

Ageing population is also going to create challenges that the economy must overcome

The shortage of skilled labour is the “second most pressing issue next to political instability” hindering growth in Thai manufacturing, says a Bangkok-based World Bank expert.
 
And Thailand’s skilled labour shortage has been getting worse: for example, the time it takes to fill a vacancy for a skilled worker in the country has increased from about five weeks on average in 2007 to eight weeks in 2015, said The World Bank’s east Asia and Pacific programme leader for poverty and human development, Lars Sondergaard.
 
The ageing population is a significant factor. This June, The World Bank’s Thailand Economic Monitor report said: “The working-age population of Thailand is expected to shrink by around 11 per cent as a share of the total population between now and 2040, from just under 49 million to around 40.5 million people.” This projected decline is higher in Thailand than in any developing country in East Asia, said the bank, which recommended action on labour productivity as a result.
 
The fact that Thailand is ageing like high-income countries, but without the same wealth, means a host of other policy challenges are intensified, including pensions, healthcare and long-term care, the Economic Monitor said. Thailand’s GDP per head in 2015 was US$5,816.40, according to bank figures; by contrast, ageing Japan’s was US$32,477.20.
 
To fix the issue, a multi-pronged strategy is needed. “Raising workforce skills is important and Thailand needs to urgently address the deteriorating quality of its education system,” said Sondergaard. A top priority would be raising Thailand’s education standards and reducing the stark (and increasing) disparity in performance between students in urban and rural areas, he said. “We recommend that Thailand utilise existing resources more effectively by reorganising its oversized school network to address severe teacher shortages, a lack of teaching materials and [weak] physical infrastructure in small rural schools,” said Sondergaard.
 
Meanwhile, more investment would help, especially in research and development (R&D), which would generate more sophisticated production that translates into higher labour productivity, Sondergaard said. Thailand’s R&D investment was less than 0.5 per cent of GDP in 2014.
 
Thailand has been falling further behind most of its peers in the ASEAN+3 region (the 10-member ASEAN bloc plus China, Japan and South Korea) who have substantially increased investments in R&D activities over the last two decades, Sondergaard said. For instance, China increased its R&D expenditure from 0.5 per cent of GDP in 1996 to 2.1 per cent in 2014; and the Vietnamese government is aiming to increase it to 2 per cent of GDP by 2020.
 
Increasing productivity apart, the World Bank expert said that raising the retirement age in Thailand could ease the country’s skilled labour shortage – the retirement age is just 60, with many Thais retiring at 55.
 
The government is responding. Its Office of Industrial Economics has developed a plan, released earlier this year, to boost total productivity by three per cent each year between 2016 and 2021 and labour productivity by five per cent annually over the same period. The government said it would help boost production capacity and focus on economic, social and environmental development.
 
But in a note released in July 2015, the office warned that by 2019, Thailand could face a shortage of around 290,600 workers in the manufacturing sector alone.