Economic significance of work experience : evidence from Thailand

Abstract

The decline in labor force due to a rapid transition of population structure to an aging society in Thailand has raised concerns over economic potential of the country and demanded urgent policies to tackle the labor reduction problem. Promoting elderly employment is a possible way of addressing the reduction in labor force, as current and future seniors tend to be healthy and highly educated. They can maintain human capital and remain productive even after retirement. Elders are highly experienced and this human capital enables them to work efficiently. Clearly, talented elders who decide to stay out of the labor market should be targeted by policymakers to tap their valuable human capital pool as a remedy for reduced labor force. This research aims to examine the size of potential elderly labor with an emphasis on their work experience as their outstanding human capital.

Population aged 50–69 year who are in good health and capable of working but remain outside the labor market are defined as potential elderly labor. The descriptive statistics show that of all potential elderly labor, 8 out of 10 are relatively young (50-59 years old) and predominantly males. These retirees have high work potential as they are highly educated and experienced.

To investigate the economic significance of work experience in various types of job, this research broke down the International Standard Classification of Occupations (ISCO-08) into three groups (high-skilled, semi-skilled, and low-skilled occupations) and used years in labor market after completing school as a proxy for actual work experience. Multinomial logistic regression was applied to correct bias in estimation process.

Empirical results show that work experience has a positive effect on wages, especially in high-skilled occupations, as it is clear from the fact that work experience yields the highest marginal return. An additional year of work experience for new highly-skilled workers is 2.66% and diminishes very small (0.08% every ten years). On the other hand, those for new semi-skilled and low-skilled workers are 1.97% and 1.56%, respectively. However, the former diminishes 0.6% every ten years, while it is 0.18% every ten years for the latter. Evidently, work experience is empirically valuable for working especially high-skilled jobs that involve complex technical and practical tasks as well as complicated problem–solving skills. In addition, the small diminishing marginal return of work experience indicates that work experience, i.e., human capital of elder labor is slow to deteriorate.

This research concludes with the policy implications for mitigation of the reduction of labor force due to aging population. Policymakers need to design policies to encourage potential elderly labor with high work experience to remain active in the labor market, especially highly educated retirees and previously employed in high-skilled jobs. Policymakers should provide the training for potential elderly female labor who have engaged in household work and those retirees from semi-skilled and low-skilled occupations to increase their productivity and employment opportunities.