Raising standard of living via minimum wage policy versus transfer payment policy

Abstract

It has been, historically, found that one of the most successful economic development concepts is the concept of welfare state where a government plays a big role in providing social benefits for its citizens through its various government intervention policies. This administrative concept has been widely adopted by many European countries with successes in Scandinavian countries, namely, Norway, Sweden, Denmark, and Finland. Attempts had been made by Thai government to adopt the welfare state concept to improve the well-beings of Thais. But concerns over the negative repercussions on the economy from the intervention policies made it so difficult for policy makers to pursuit it. This study examines empirically a living wage for low income workers and, through Computable General Equilibrium (CGE) model, tests two policies being likely for implementation in the Thai economy, i.e., a living wage policy and a transfer payment policy. The study also tests if a mixed policy between living wage and transfer payment policies would work better for the Thai economy. The results confirm the conventional economic theory that raising wage by government intervention is not a good policy for the Thai economy. Transfer payment policy is found to be the best policy as it could promote economic growth in the economy with little harm done. The only concern arising out of transfer payment policy is the government budget deficit. On income inequality issue, this study discovers that living wage policy would not serve well in reducing it.