Why COVID-19 Will Worsen Inequality in Thailand

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Why COVID-19 Will Worsen Inequality in Thailand

Many Thais were already economically marginalized before the outbreak. Without urgent action, they will fall deeper into poverty.

Why COVID-19 Will Worsen Inequality in Thailand

Before the COVID-19 outbreak, Thailand’s capital was the world’s most visited city. Now Bangkok’s once-bustling streets are quiet. With its struggling economy, the timing of the crisis could not be worse for Thailand. Exports have been falling since 2019 while the GDP growth rate remained one of the lowest in Southeast Asia since 2014. These trends will worsen in the coming months. The government predicts the economy will contract by 5.3 percent while the International Monetary Fund estimate is even worse, foreseeing a 6.7 percent drop in GDP. Either scenario would make Thai economy the worst affected in the ASEAN region.

To be sure, everyone in Thailand is being affected by the sudden economy-wide disruption — from big business houses like the Central group to petty traders and day laborers. But the hardest hit are thousands of tuk tuk drivers and street vendors in Bangkok, Chiang Mai, and Pattaya who are jobless following the shutdown of the country’s $60 billion tourism sector. The COVID-19 outbreak will only deepen inequality in Thai society.

Even before the coronavirus outbreak, Thailand remained one of the most unequal societies in Southeast Asia. As per estimates provided by the Office of the National Economic and Social Development Council, Thailand’s Gini coefficient – a widely used measure of inequality, with a figure closer to 1 indicating more inequality — was 0.45 in 2017. More disturbingly, Thailand topped the world ranking in terms of its wealth gap the following year. According to Credit Suisse’s 2018 “Global Wealth Report,” the richest 1 percent in Thailand controlled almost 67 percent of the country’s wealth. With a high burden of household debt and/or a lack regular income, the share of the bottom 10 percent in the nation’s wealth was 0 percent. Even the bottom 50 percent of Thais had a meager 1.7 percent share in the country’s wealth. Contrast this with 85.7 percent share enjoyed by the country’s richest 10 percent.

The COVID-19 outbreak will only deepen these existing income and wealth inequalities. If Thailand’s economic history offers any guide, income distribution will worsen in the coming months. There are important lessons to be learned from the 1997 financial crisis. Unemployment rose sharply between 1997 and 1998, from 0.9 percent to 3.4 percent, while the Gini index rose to 0.52 by 2000.  Similar patterns followed in the aftermath of the 2007 financial crisis. The financial crisis resulted in a sharp drop in international trade, raising unemployment. Going by these past trends, unemployment is likely to spike once more. The Department of Employment also confirms significant job losses following the coronavirus outbreak.

Given the high share of informal employment and the large number of smaller enterprises and family businesses, COVID-19 will have a disproportionately negative impact on the bottom 50 percent of Thailand’s workforce, who are already vulnerable due to their lack of regular income and productive assets.

As the government enforces a nationwide movement order control, millions of Thais are forced into involuntary unemployment. The majority of them are in the informal sector, without either a formal contract or salaried jobs. Close to 50 percent of Thailand’s workforce comprise own-account workers and contributing family workers, what the International Labor Organization calls “vulnerable employment.”

Some employers have reorganized businesses allowing employees the option to work from home. But the country’s digital divide is wide and is mostly a reflection of existing economic gaps. In 2017, only 3 percent of poor households with an average monthly income of less than 16,667 baht ($510) owned a computer with internet connection. This limits opportunities to use technology to work from home and/or to supplement their income by engaging in the platform economy.

Compared to its ASEAN neighbors, the number of infected individuals in Thailand is still relatively low. Thailand’s count of COVID-19 cases is less than half the figures for Singapore, the Philippines, and Indonesia. But given the precarious nature of the outbreak, there is no room for complacency. The government is therefore right to respond early by introducing a stimulus package. This includes a number of provisions to protect employment earnings and secure jobs. The country’s 11.7 million salaried employees are eligible for the Social Security Fund. There are also provisions to support income for those in informal employment at 5,000 baht per month ($153) for three months.

But there are major challenges in reaching out to the most vulnerable groups. The government reported 27 million people applied online over the past two weeks for the cash handout. But as of April 14, only 1.68 million of them have been approved. In order to apply for the income support, one has to have access to the internet and hold a saving account. This requirement has excluded some from the poorest communities such as daily wage workers, street vendors, and taxi drivers.

There are also similar reports of exclusion from another “No One Left Behind” scheme, which promises financial relief in cash every month for three months. Thousands were wrongly left out of this flagship government scheme after an administrative error misclassified the eligible population.

The fall in earned income and the lack of monetary transfers is not the only source of vulnerability. In 2019, the ratio of household debt to income was 148.8 percent.  Household debt burden will certainly increase among low-income households, agricultural families, and older persons in the coming months. A prolonged crisis is likely to deplete whatever valuable assets they have. The adverse impact on inequality will only increase if more decisive and targeted measures are not taken for the poor and these vulnerable groups.

Millions of Thais remained marginalized even before the COVID-19 outbreak. With its already highly unequal distribution of income and wealth, Thailand cannot afford a further widening of the wealth gap. Therefore, more extensive and universal protection of those in vulnerable employment group should be the policy priority as the coronavirus crisis intensifies in the coming months.

M Niaz Asadullah is Professor of Development Economics at the University of Malaya and Southeast Asia Lead for the Global Labor Organization (GLO).

Ruttiya Bhula-or is an Assistant Professor and Associate Dean of the College of Population Studies, Chulalongkorn University, Collaborating Centre for Labour Research at Chulalongkorn University, and the Country lead of the Global Labor Organization (GLO) for Thailand.