The impact of saving schemes on saving behaviour : evidence from Thailand

Abstract

Thailand has many compulsory saving schemes for income security at old age. A crucial question is whether how different saving schemes affect saving behavior of workers with different working status. Whether the dissimilar in saving is related to the observable characteristics of workers or is due to the effect of benefits in different saving schemes. It is essential to determine that compulsory saving schemes encourage formal workers to save more or discourage saving. At the same time, it must be determined whether informal workers who do not have compulsory savings have a higher saving incentive to compensate for the lack of compulsory savings.

This paper employs the Blinder-Oaxaca decomposition method to answer the above questions. Because this method allows us to decompose the causes of savings difference. The endowment effect is described by differences in the observable characteristics of workers or by differences in the determinants of saving, such as age, income, education, and other characteristics. The discrimination effect evaluates the distortionary effect of the compulsory saving scheme on saving behaviors.

The empirical result of saving determinations is in line with past studies. For instant, the total individual income, educational attainment, consistently saving behavior, and saving motive for retirement and precautionary saving are crucial factors in determining savings. However, the decomposition methods provide more information on saving differences. For the formal workers and the informal workers, the study indicated that the discrimination effect is higher than the endowment effect. But the formal workers have a motive to save for precautionary and retirement (which is the endowment effect). Moreover, compulsory saving systems force formal workers to save more than informal workers also. Because compulsory saving is one of the saving channels that offers a high rate of return to saving and provides the other social welfares that reduce the cost of living of formal workers.

Nevertheless, low-income informal workers have an advantage in the coefficient contribution (coefficient part). The reason is due to low-income informal workers do not participate in any compulsory saving schemes and have no other fringe benefits that help to reduce the cost of living, unlike the formal workers. Informal workers, therefore, have to save their own uncertainty and for old age.

The causes of saving differences between government employees and private employees contributed to the endowment effect rather than the discrimination effect. But the coefficient contribution is in favor of private employees. The reason that employees save more is due to preventing the emergence of sickness for the social security benefit that does not cover all medical care expenditures. Moreover, the pension benefit of private employees is relatively low compared to that of government employees.