Minimum wage through the looking glass

Abstract

We investigate impacts of two major increases in minimum wage of Thailand in 2012, and 2013. In spite of the large increase in average wage induces by the hike, the effect on employment is positive. Given that roughly 40% of daily wage samples are less than the minimum wage, we build and estimate a model that incorporate (minimum wage) compliance decision. We use switching regressions to estimate the gap in wages between above and below minimum wage. This gap is sizable and statistically significant for daily wage, but small and statistically insignificant for monthly wage. When the employer's probability for compliance is included in the employment probability of individuals, we find that the higher compliance rate positively influence the employment probability. These finding strongly suggest that the minimum wage hike in 2012-13 induced north-eastward shift of the equilibrium along the labor supply schedule. In the last part of the analysis, we offer a variety of circumstantial evidence in support of tacit collusion among large scale employers in setting daily wages.