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Somchai Jitsuchon and Nuntaporn Methakunavut**



Trend in Poverty and Inequality

In the past two decades, especially from 1986 to 1996, Thailand had been successful in reducing overall poverty. National poverty incidence fell from 45 percent in 1986 to about 8 percent in 2009. However, the reduction has not been universal across population subgroups and areas. As a result, the poor people have been concentrated in rural area (Figure 1), in the Northeast region (Figure 2). General labors, farm operator and those with the lowest education have the highest probability of being poor (Figures 3 and 4). Figure 1 Poverty Incidence Classified by Areas
60 50 40 30 20 10 0 Rural Urban 1986 1988 1990 1992 1994 1996 1998 1999 2000 2001 2002 2004 2006 2007 2008 2009 52.6 49.7 39.2 35.3 22.9 18.2 22.0 25.6 26.5 23.6 18.9 14.6 12.0 10.7 11.5 10.4 25.3 23.7 20.5 12.1 9.9 6.8 7.1 8.5 8.6 8.5 6.4 4.6 3.6 3.3 8.5 3.0 8.9 3.0 8.1

Whole country 44.9 42.2 33.7 28.4 19.0 14.8 17.5 20.4 21.0 18.8 14.9 11.4 9.5

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

** Research Director and Senior Researcher, Macroeconomic Policy Program, Thailand Development Research Institute (TDRI).

Figure 2

Poverty Incidence Classified by Regions

70 60 50

40 30 20 10 0 Bangkok Central North South 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2009 15.0 34.6 46.0 37.5 11.7 34.5 47.9 56.7 32.9 11.9 26.1 35.2 46.1 29.0 4.4 18.3 32.7 41.1 25.2 4.1 11.2 20.7 28.1 17.8 1.2 6.1 17.8 24.5 10.3 1.2 7.8 16.5 30.7 14.0 1.7 9.0 23.1 35.3 16.6 2.2 7.6 20.3 23.1 9.6 0.8 4.5 15.7 18.6 6.0 0.5 3.3 12.0 16.7 5.5 1.1 3.1 12.9 13.0 5.9 0.8 3.1 13.3 14.6 4.4 0.9 2.5 11.1 13.7 4.7

Northeast 62.6

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

Figure 3

Poverty Incidence Classified by Highest Education of Household Member

70 60 50 40 30 20 10 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2009 58.8 55.6 46.0 39.9 27.7 22.1 27.6 33.4 18.1 13.8 18.0 16.3 17.2 14.6 28.4 28.9 22.5 19.0 14.4 12.5 17.0 20.9 12.7 10.0 3.3 3.3 6.3 1.6 3.3 1.7 3.2 0.4 1.9 0.7 2.9 0.5 6.0 4.6 0.4 15.8 0.2 2.5 0.2 0.0 0.5 1.2 0.0 21.2 7.5 1.2 0.3 6.9 7.0 0.8 0.4 6.3 8.1 1.8 0.3 8.6 1.2 0.8

Primary and less Secondary Vocational Tertiary and more Others

37.4 25.5 16.4 22.5 18.0 12.2

25.2 21.6

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

Figure 4

Poverty Incidence Classified by Household Socio-Economic Classes

80 70 60 50 40 30 20 10 0

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2009 59.5 26.0 67.9 4.1 34.6 56.2 25.8 63.1 2.6 24.7 38.1 45.0 17.1 57.0 3.0 20.2 29.4 41.8 11.5 52.4 1.9 13.4 27.4 28.0 7.2 33.2 1.5 11.7 24.8 22.5 5.9 30.2 0.7 8.6 18.8 26.8 6.5 36.8 1.2 12.0 19.5 34.5 8.9 44.0 1.7 11.8 23.9 23.1 4.9 36.0 0.7 10.2 19.0 19.0 3.2 25.7 1.3 6.5 16.1 16.7 4.1 16.5 1.4 5.5 14.4 15.1 4.1 16.3 0.7 4.8 12.8 15.6 2.7 13.0 0.6 4.8 13.1

Farm operator Entrepreneur laborer Professional Inactive

Other employees 23.7

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

It is clear from Figure 3 that educational attainment is different significantly between the poor and non-poor. Most of the poor families have member with highest education of primary level or less. This low education level leads to low opportunity to high-paying job, capital, and even poverty alleviation programs offered by the governments. Poor and non-poor families also differ in socio-economic class, which classified based on the families main source of income. In the past two decades, most of the poors main income source was from being laborer, but they tended to do better over time when compared to farm operator families, resulting in similar poverty incidence among the two family groups at present. The link between poverty and agriculture is further illustrated by the household's characteristic and income level. Recent data reveals that a larger proportion of poor agriculture households are headed by old age individuals over 60 years old with child members. Working age members left household and left behind their children to work in other regions or abroad. Thus this type of households will have high dependency ratios. Despite rapid improvement of overall poverty, there are increasing concerns over inequality. Economic inequality remains high throughout several past decades (see levels and movements of Gini coefficient in Figure 5). It has been argued that the persistent inequality partially caused social and political conflicts among income classes in Thailand. Figure 5

Gini Coefficient in Between 1976-2009



1976 1981 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2009



Source: from Socio-Economic Surveys (SES) data, National Statistical Office.


Dissecting Change in Inequality

Looking at Gini coefficient alone may hide many interesting details of changes in income distribution. Figures 6-7 show changes in expenditure shares (out of total national expenditure) of households by economic class. In figure 6, households are classified into ten economic classes (decile), while in figure 7 only the first 7 deciles are shown. During 1986-2010, the poorer households seemed to be doing better than both the richest and the middle income class (represented by those in decile 4-7). While this is consistent with the rapid reduction of poverty, it might raise the issue of low performance of the middle income. Given that people in this group of people are mostly those with some education, perhaps around secondary level, question arise as to

the economic return of mid-level education. A recent study find that income growth of those finishing secondary school has been actually lagging behind those with either lower (primary high) and higher (tertiary) education. See Figure 8. Figure 6
1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 Poorest 2 3 4 5 6 7 8 9 Richest

Changes of Household Expenditure Shares by Economic Decile, 19862010

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

Figure 7
1.0 0.5 0.0 -0.5 -1.0 -1.5

Changes of Household Expenditure Shares by Economic Decile (First 7 Decile), 1986-2010

Source: from Socio-Economic Surveys (SES) data, National Statistical Office.

Figure 8
1.2 1.0 Hourly Wage (log) 0.8 0.6 0.4 0.2 0.0

Wage Differential Classified by Education Attainment (1986=0)

College Upper Primary High School

(0.2) 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: Lathapipat (2011)

Another piece of evidence that points in similar way is the stagnation of real wage of those working in industrial sectors. The rate of increase in nominal wage has been roughly the same as that of price level. There are several possible explanations for this. For example, the large influx of unskilled or semi-skill foreign workers put downward pressure on Thai workers wage. Changes in production structure toward more influence by the multi-national companies, which employ less labor, can also be another cause. Whatever reasons behind this, raising the income of this mid-income subpopulation becomes an urgent issue. This can be done two ways, by making midlevel education more relevant to labor market, and by providing effective skill training to those who already leave schools. Doing so would make both education and skill training more inclusive in the sense that it should speed up the narrowing of income inequality in Thailand in a meaningful way. The following two sections will discuss Thailand education and skill development experiences. Concerns and problems will be addressed, but more importantly, we will discuss ways to make such development more inclusive. Figure 9 Changes in Thailand Industrial Sector Real Wage Compared to Other Countries (1995-2006)

Source: Insight December 2009, Siam Commercial Bank Economic Intelligence Center



Access to Education by the Poor

According to education for all agenda since 1990, universal education is regarded as the primary goal of national development. In the past two decades, the Thai government has successfully raised the primary school enrollment rate to almost universal and substantially increased secondary school enrollment to 90% (figure 10). The enrolment rate at tertiary level is also high by international standard, registering at almost 60 percent in 2008. Although education access in generally is somewhat satisfactory, access by students from poor families is still a major concern. Free tuition fee, which has been implemented long time ago, was not sufficient in keeping these students in schools. The 15-year free education, introduced in the year 2009, was aimed at solving this problem. Under the scheme, other expenses such as books, uniforms, and extra curriculum, are to be provided with government subsidies to every student since kindergarten to upper secondary (grade 12). Figure 10 Gross Enrollment Rate: 2005-2008
100 95 90 85 80
2005 2006 2007 2008


Lower secondary

Upper secondary

100 90 80 % 70 60 50 40 30
2005 2006 2007 2008


Lower secondary

Upper secondary


Source: calculated from number of students and population by ages, reported by Ministry of Education

A recent study, however, shows that the scheme did not fully guarantee free education to poor students. A major expenditure excluded from the scheme is transportation expense. In the year 2009, students attending public school, which tended to be those from low to middle income families, had to pay transportation cost averaging around 3,500 baht (see table 1). The amount was a heavy burden for poor families to send their children to schools. Moreover, the poor family usually lives in remote areas lacking affordable public transportation. Drop-out rates of students in grade 9-10 confirmed this situation (see table 2). Table 1 Household Education Expenditure Classified by Expenditure Items, Education Levels and School Types: Year 2009 (Average Baht per Head per Year)

Private school Public School Tuition Books and Tuition Books and Fees Uniform Equipment Transport Fees Uniform Equipment Transport Pre-primary 8,703 980 823 3,612 1,546 708 456 2,317 Primary 11,031 1,315 1,454 4,794 1,976 880 761 2,837 Lower Secondary 10,894 1,507 1,600 5,022 2,562 1,139 1,122 3,580 Upper Secondary 23,643 1,430 1,809 5,898 4,615 1,238 1,416 3,927 Vocational 12,604 1,770 2,303 6,578 4,565 1,443 1,528 4,645 Tertiary 37,683 1,978 3,346 8,510 14,461 1,636 2,459 6,231 Informal Education 2,426 692 559 2,418 Total 13,824 1,272 1,500 5,052 5,120 970 973 3,533 Source: calculated from Socio-Economic Survey (SES) data, National Statistical Office (NSO)

Table 2 Drop-out Rates at Primary-Upper Secondary Levels under the Office of Basic Education Commission: Academic Year 2007 Enrollment in Initial Grade Academic Year 2007 No. of Drop outs Drop-out (persons) Rate (%) (persons) 7,272,532 122,130 1.68 Total 622,720 8,020 1.29 Grade 1 612,080 6,630 1.08 Grade 2 625,573 6,579 1.05 Grade 3 688,290 7,283 1.06 Grade 4 727,744 8,164 1.12 Grade 5 727,919 8,698 1.19 Grade 6 4,004,326 45,374 1.13 Total of Primary Ed. 770,164 15,072 1.96 Grade 7 760,764 19,095 2.51 Grade 8 734,443 20,912 2.85 Grade 9 2,265,371 55,079 2.43 Total of Lower Secondary Ed. 373,273 10,321 2.77 Grade 10 327,817 6,632 2.02 Grade 11 301,745 4,724 1.57 Grade 12

Grade Total of Upper Secondary Ed.

Enrollment in Initial Academic Year 2007 (persons)

No. of Drop outs (persons)

Drop-out Rate (%)

1,002,835 21,677 2.16 Source of Data: Educational Statistics of the Office of Basic Education Commission : Academic Year 2008, referred in Tharmmapornphilas (2011)

Research study from Lathapipat (2011) found that past government efforts to provide greater access to basic education have resulted in the reductions of the upper secondary enrolment gaps between teenagers from poor and from rich households (see figure 11). However, the gaps in tertiary enrolment rates between the rich and not-rich (the three lower quartiles) are observed to expand greatly (figure 12). The implication is that addressing short-run financial constraint is not enough to solve education inequality. To increase chances to higher education to poorer students, the government should also focus on improving the quality of primary and secondary education. Figure 11 Trends in Upper Secondary Participation Rates for 16-19 Year-olds by Household Expenditure Quartile

Source: Lathapipat (2011)

Figure 12 Trends in College Participation Rates for 19-25 Year-olds

Source: Lathapipat (2011)


School Quality

Majority of low-performing schools are reportedly in rural areas. Recent assessment by National Education Standards and Quality Assessment (NESQA) revealed that 3,243 out of 15,515 schools assessed did not pass minimum quality requirements (NESQA, 2008). Lounkaew (2011) empirically found that school quality contributes to performance differential between students in urban and rural areas in Thailand. For example, the literacy score difference was accounted for by school quality. Moreover, it matters more at the bottom and the top end of score distributions. Thus the school quality is the key to narrowing the performance differential between urban and rural students, which consequently narrowing inequality in terms of education and area. This contributes to policy maker to look more closely on local management, in addition to central support. 2.3 School and Education Management in Thailand

Thailand began the first phase of education reform when the 1999 National Education Act was passed, and it is now under the second phase reform. During the first phase, the country had spent a great deal of time and resources, and succeeded in improving the quantity of education, as indicated by increased enrollment rates and average years of schooling. Unfortunately, the quality aspects such as the teacher competency, schools and programs quality, was overlooked. This resulted in Thailands low rank on education competency (25-50 of 60) by IMD. Average PISA score of Thai students was also below average level (level 1 of 6) on language, mathematics, science, and reading skills. Some knowledge and skills developed by young people did not pertain to social and economic needs, which led to higher unemployment. Education quality is thus the urgent policy priority for Thailand. There are numerous evidences showing high rate of return to education quality, as compared to quantity. Cognitive skills, rather than mere school attainment, are found to be highly related to individual earnings, to the distribution of income, and most importantly to economic growth. Hanushek (2011) finds that once differences in cognitive skill are controlled, years of schooling provide only little influence on economic growth (see figures 13 and 14). He also noticed larger skill deficits in developing countries than generally derived from school enrollment and education attainment. Figure 13 Countries Quantity of Schooling and Growth, Without Quality Control

Source: Hanushek (2011)

Figure 14 Countries Quantity of Schooling and Growth, With Quality Control

Source: Hanushek (2011)

Hanusheck (2011) also suggested that teacher quality is the most important aspect of schools. Two success examples stand out, namely, Singapore and Finland. The two countries have difference pattern of economic development, but are both highly successful in education quality. Institutions and incentive structure are key policy levers. They encourage competition among schools, accountability (through central exit examinations), tracking system, reasonable and attractive teacher performance pays, and excelling pre-primary education system. Thai government also realized the importance of education quality. In the second phase of education reform master plan, which was approved on August, 2009, the focus is on improving the quality of learners. Higher skills, vocation and knowledge will be developed. As for the poor and the underprivileged, a 15-year free education program will be mobilized with a provision of greater and fairer educational opportunities and qualities. Various funds and mechanisms will also be introduced to support the teaching profession. 2.4 Role of Private Sectors

Private sector, consisting of families, communities and business units, has been indicated to play an important in education system, along with the public providers. To enhance the role of private sector, government introduced all for education concepts. In 2007, government offered approved home school education a unit cost subsidy per student at the same rate that was offered for registered private school, and 50 percent of the rate to basic education provision in firms. Cooperation between public and private education providers is also encouraged. Examples are the two initiatives co-operative education and dual vocational training. Three stockholders are identified, namely, government (providing budget subsidy), schools (academic provider) and firms (market expert, funding), to cooperatively develop vocational skills and knowledge of upper secondary, higher vocational and university level students to meet market needs. The four recognized successes are


Mercedes-Benz Thailand and The Siam Cement Group (SCG) (internship on-the-job program and earn high certificate degree), Toyota Automotive Technology School funded by Toyota Motors, Automobile Industry Technical College funded by the Honda Group, Panyapiwat Techno Business School, funded by CP All Public Company Limited.

Vocational Education

A World Bank study (World Bank 2008) finds that Thailand vocational education suffered from poor quality and skill mismatch, indicated from low (13 percent) employment rate of vocational graduates. Consequently, those graduated from vocational schools continue to higher, tertiary levels. This created severe shortage of middle skill (operational level) manpower. Moreover skill mismatch problems persist through the lack of appropriate skill development in colleges. The World Bank study also indicates the inconsistency of tertiary education to market needs. There is oversupply of social science graduates, but shortage of sciences, health sciences and technology. The ratio of sciences graduates to social science graduates is around 30:70, while in other countries it is the other way around. Table 3 presents another piece of evidence, from firm survey, of quality problems of Thai workers (MOL 2007). It shows that actual skills/knowledge labor is far behind firms expectations. Table 3 Overall Core Skill Gaps in Thai Industry Skills Expected level 3.89 3.57 3.38 3.74 Real level 2.30 2.02 1.93 2.42 Lacks level 1.59 1.55 1.45 1.32

Thinking, problem solving Computer Language Communications

Source: Labor Master Plan (2007-2011) (executive summary), Ministry of Labor (MOL), 2007, page 16.

Ministry of Labor (MOL) initiates mechanisms to gather data of manpower demands and works together with all government stakeholders and firms to conduct the consensus manpower plan for the future. Co-operative education, dual vocational training, and teachers and students internship/ training in firms have been introduced in order to create qualified manpower. Furthermore, government proposed occupational/competency standards under the National Competency Qualification Framework (NCQF). The framework is aimed to systematically create Thai manpower competency with an assured standards. It is designed to serve demand driven mechanism and would facilitate competency-base salary scheme.


Although access to education has been improved rapidly over past decade or so, those who benefit are relatively young workers. For workers aged over 30 years old, their education attainment are still low, and they form the majority of Thai workforce at the moment. So, making education more inclusive as discussed earlier will not be sufficient, at least in the short term, to significantly improve the countrys income distribution. Skill training must fill this gap. Moreover, given the unsatisfactory education quality even after the education reform, after-school training is also necessary for those freshly graduates from high schools, vocational and even colleges. The most recent development in skill training in Thailand was the passing of Skill Development Promotion Act B.E. 2545 (2002). The Act aims at developing skills for the entire labor forces through upgrading labor standards and enhancing occupational capability at the individual level. It attempts to encourage and support occupational training in response to the emerging business environment, with active involvement of private sector. Under the Act, firms larger than 100 employees are obliged to provide training to at least half of their workers, or else must contribute to Skill Development Fund, from whose resource the government will provide the training on firm behalf. Firms are also allowed to borrow from the fund for training activities, labor standard evaluations, or even acquire as grant subsidy if necessary. Training expenses are tax deductible, twice the actual spending. Initial evaluation of this latest scheme indicates substantial increase in training activities. The workers receiving training from the firms increased from around 300 thousand workers in 2005 to around 4 million workers in 2008. There is however some compliance problem. Around 30 percent of firms with more than 100 employees failed to obey the law in 2008 (table 4). Table 4 Performance of Firms under the Skill Development Promotion Act (Percent of Total Targeted Firms) 2006 2007 2008 Provide training 69 59 65 Pay to the Fund 8 6 Neither 31 33 29

Source: Department of Skill Development, Ministry of Labor

There are several government and private own training institutes. Along with formal training institutes, there are also small skill development training units and community-based vocational training centers which are mostly financed by local administrations and NGOs. Despite all the efforts, evidences still show large demand-supply mismatch. Job placement rates (placements to vacant positions), during the years 2008-2010 ranged from a mere 54 percent to 80 percent.

Figure 15 Job Placement Rate (percent)

90 80 70 60 50 40 30 2008 2009 2010 54.06 79.83


Source: Labor Situation Report in the year 2008-2010, Ministry of Labor www.mol.go.th/academician/labour_situation/centrally

Job mismatch of skill training programs can be attributed to several factors. Recent interviews with government officers and workers found four main problems. First, training courses do not match workers or firms demands. Training time schedule is not suitable to firms and workers. Third, there are no guarantees that workers finishing training will be recognized and receiving higher pay afterward. Forth, lacks of good trainers. Some large firms set up their training units, or even schools, with the sole purpose of feeding employees who possess the skills they need (like the case of CP All Company mentioned earlier). Other large firms, however, do not do the same from the fear that the employees they have trained might move to other companies who then act as free-riders. Small firms, which lack sufficient resources to self train their employees, might have to seek helps from outside. Local governments could be potential good financial sources. They can join the local firms in providing skill development that are most beneficial to the local people in the local environment. This arrangement can help poverty reduction in some areas where labor demands do exist.




Before we propose policy recommendations, let us first summarize our discussions so far, as follows. 1. Although poverty rate declined steadily, there remain those who are left behind in term of facing unfavorable economic opportunities. These include families with students who might be denied access to higher level and higher quality education. This applies to families at the bottom end of the distribution, as well as those in the middle range. Even if they manage to get education up to high school level, the long-run economic return from this education grows slower than those with either lower or higher education. This situation applies to those with vocational education as well. The income gap between these middle classes with the rich population are thus wider while the gap with the poorer one narrower. If this situation persists, those escaping from poverty from below might run into the same middle income trap. Education reform thus far, while highly successful in expanding education access, has produced low-performance students, whose performance continue to decline in most recent tests, both at international and national levels. Education quality, especially at mid-level education, is thus an urgent issues if we want to make sure that education becomes more inclusive. For those already left schools with secondary education or lower, good quality skill training is vital to help improve their earning prospects. Like education, although significant progress have been made in providing skill training to larger numbers of workers, the quality of training is still doubtful, as evidenced by persistent problem of job mismatch. Private sectors have been playing more active role in skill training, but there are only limited numbers of successful firms.


3. 4. 5.

6. 7. 8.


Policy implications arising from the above findings can be conceptualized as to (a) prevent wider gaps between the richest and other income classes (b) accelerate the narrowing of gaps between the poor and middle-income class. The first task can be done through the concepts and policy measures for inclusive globalization, where the middle and higher middle income should get better chances of tapping into economic return from entrepreneurial involvement with globalization, which is a privilege enjoyed mostly by the richest of the country. More inclusive education and skill training, on the other hand, can help achieving both tasks simultaneously.


Inclusive Education Policy Measures

Following the problem issues mentioned earlier in education, the following policies should be implemented. Ensuring across-the-broad quality improvement in education for early and basic education. This involves improving teacher quality, school management and evaluation system. Pre-school education must also be expanded both in term of access and quality. Numerous evidences show that cognitive skill development in early age has positive long-term effect on individual learning ability. Improving the implementation the free education policy to be actually free, especially to poor students located in remote areas who have to bear large transportation cost to attend schools. Redesign universal tertiary tuition fee subsidy to be more targeting on underprivileged groups, since evidences proved that high-end income class has more chance to access this level of education. Changing attitude of parents who prefer sending their youths to academic education instead of vocational schools. Private sector may help by signalling needs through employment and wage incentives. Reducing education mismatch by cooperating with private sectors in highschool and vocational education. Life-long learning, alternative education and informal education should be considered by the government as the instrument to distribute knowledge and narrowing knowledge of those already left schools.


Inclusive Skill Development Policy Measures For skill development, the examples below may be desirable policy measures. While priority remains with providing skill training to underprivileged labor by implementing skill development training designed specifically for low educated workers, more attention should be made to training of higher skills to mid-level educated workers. Tapping on local wisdom in skill development, through creation of cooperative networks with local governments and communities to match the local needs. For self-employed workers, such as farmers and small entrepreneurs, whose income are unstable, the government should develop some mechanism of income guarantee programs, along with training of management and entrepreneurial skills. Introducing wage adjustment scheme that match increased skills, such as skill testing certificate, vocational qualification standards.


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