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What is the Government Doing About the Unemployment Issue?

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What is the Government Doing About the Unemployment Issue?

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As skill shortage had became one of the biggest problem in Thailand, the government had implemented some improvements in hope to solve this concern. Thailand had added in some reforms to increase the work skills of the citizens to help them get better, more stable and more high-paying jobs. During the course of education in a Thailand, students are encouraged to innovate and attend lessons that equip them with skills that are useful in the future in finding jobs. The Thailand government is also putting in more money in the education sector in Thailand by investing in more teachers so that students would have a fulfilling education in Thailand, since good education is the key to having highly skilled workers in the future. Thailand schools had also work together with other employers and companies to let the students gain experience by getting the students to embark on joint projects with outside companies so that students would have the knowledge to work in the future. To further improve the education sector in Thailand, the Thailand government had raised the quality of their testing and certification system to ensure that the students would have better teachers to educate them. This would benefit the country as the country would have better teachers to educate the students and in turn, the students would grow up to become a more highly skilled worker with a stable and more high-paying jobs, which would benefit the economy.

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The aggregate expenditures function shows how the expenditures affects the real disposable income. AE=C+I. In Thailand, if the government lower taxes to increase the consumption of the country, the aggregate expenditure will increase, causing the real GDP to increase too. This allows economic growth. Hence, in my opinion, there is still hope for Thailand to recover.

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The Consumption Function shows the trend of spending of consumers introduced by John Maynard Keynes. This diagram shows the relationship between the Real Disposable Income - the key determinant of the level of consumers' demands for goods and service, and Real Consumption, which affects the GDP as we recall, using expenditure method GDP = C + I + G + (X-M).

When C = Yd, it indicates that it is a break-even income, also known as a no-saving income.

However, Exhibit 1 is just an example illustrated. In Thailand, the debt-service payment rate is at more than half of their disposable income, causing their disposable income to be lower. A lower disposable income would mean, lesser money to spend on their autonomous consumption, therefore it could possibly lead to dissaving - where one takes out money from previously accumulated financial accounts or to take loans.

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Frictional Unemployment occurs when the economy is trying to match people and jobs correctly; it is a short-term unemployment and is not a major issue. Structural unemployment occurs when a given set of skills is no longer needed due to reasons such as upgrading of technologies, area of employment; it is a major issue and is usually long-term. Seasonal unemployment occurs when jobs only exist at some times of the year; such examples are agriculture and skiing coaches. Cyclical unemployment occurs during recessions, where people are out of work because of the poor economy and there is no demand.

In Thailand, structural and seasonal unemployment are the most major concern as the working population do not have the required skill sets to keep them employed and almost 40% of the labor force works in agriculture sector, resulting in them being unemployed during the off-season. Although they are still considered to be employed if they do part-time jobs or casual jobs during the period, their disposable income are greatly affected, resulting in the drop in consumption, which in turn affects the GDP growth of the country. The lack of skill sets may result in the working population being fired in due time as their jobs may be replaced by improved technologies.

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Household debts had increased by 25%, from 60% to as high as 85% of the GDP, resulted from the low interest rates, easy access to credit and popular schemes such as tax rebates for first-time car buyers.Even farmers are facing critically high debt-service ratio of 52% while their incomes remain low due to the looming drought and the low price levels of rice and rubber, the two widely grown crops.

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Gross Domestic Product (GDP) is an estimated value of the total worth of a country’s goods production and services, within its geographical boundary, by its local and foreign companies, calculated over the course of one calendar year.

However, there are some limitations of GDP; such as the changes in quality and the inclusion of new goods, leisure time and human effort costs, underground economy, harmful side effects of pollution and non-market production, which may result in the GDP being understated or overstated.

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Relationship between Keynesian's School of Thought and GDP (Consumption Sector)

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Relationship between Keynesian's School of Thought and GDP (Consumption Sector)

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John Maynard Keynes argued that demand creates its own supply as aggregate demand can forever be inadequate for an economy to achieve full employment.

As most of their disposable income are spent on servicing debt payments, they have lesser nominal money to spend on other goods and services, causing consumption expenditure to subdue, which may result in a drop in the GDP. To add on, as they have lesser money to spend on goods and services, demand for these goods and services will drop, as demand creates its own supply, companies and businesses will then produce lesser, which could and would result in a drop in GDP.

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There are 3 types of recoveries, namely "V" shape recovery, "U" shape recovery and "W" shape recovery; which occur when the economy declines and rises rapidly, declines and recovers gradually or when the economy declines again shortly after its recovery from the previous recession respectively.

With the figures and positive economics presented in these articles, we can infer that the type of economy recovery that is occurring in Thailand is the "U" shape recovery, as the economy had declined fast and stayed at the bottom for a while before the gradual rise back.

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-The low crude prices in Thailand is able to increase net exports, ensuring that the Thailand's import bill remains low.

-There is still room for improvement for the consumer prices. Consumption has been lower than expected for the past year. It has been declining since February last year, which is also lower than the targeted amount. Hence, the government can increase consumption by implementing policies such as lowering taxes.

-The increasing amount of tourist arrivals is also able to boost the economy. It increased from 15.9% in January up to 18% in the first half of February last year. Therefore, the government can focus on tourism, in order to ensure an economic growth.

-With low oil prices, tourism growth and more consumption, the country should be able to recover from recession. Overall, it depends on how effective the government policies and actions and confidence of the people and business in Thailand.

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Cost-push inflation - increases in costs of production (labor, capital, land or entrepreneurship) when companies run at full production capacity and the increased costs are passed on to consumers, causing a rise in the general price level (inflation).

Demand-pull inflation - an increase in aggregate demand by consumers, causing demand to exceed supply and consumers compete to purchase the goods and services. This excessive demand shows that "too much money chasing too few goods", and it usually occurs in an expanding economy.

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In the article, household consumption expenditure declined by 0.3% due to the high household debt and 1.6% contraction in the agricultural sector. Private investment had increased by 4.1% while public investment declined 0.3% despite having the public construction at 5.1%. In line with the military administration's plans to increase fiscal spending, government spending had increased by 5.5% from the initial 0.4%. The net exports had increased to 3.7% as external demand resulted in improved exports while imports continued to shrink

GDP = Consumption + Investment + Government Spending + (Net Exports - Net Imports)

According to the expenditure approach of computation of Gross Domestic Product, factors such as household consumption expenditures, investments, government spending and the difference in net exports and net imports would affect the economy growth of the country. Using the formula, this shows that there had been a growth in the real GDP, which was also mentioned in the article, where the real GDP had grown 2.3% in the last quarter of 2014.

GDP Growth Rate = Real GDP of Current Year - Real GDP of last year x 100

Real GDP of last year

A positive growth rate means that the economy is growing, more and more goods and services are being produced. While a negative growth rate would mean that the economy is experiencing a recession on a year to year comparison.

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Although the economy was as bad as dropping from 2.9% in 2013 to 0.7% in 2014 - due to the fall in the numbers of tourists resulted from the political tension, the decline in manufacturing and the low private consumption, there has been a recent rebound in tourism along with the low oil pricing, which is expected to initiate an economy recovery.

However, in the article, it was mentioned that the economy recovery's strength and sustainability will depend upon how Thailand addresses its current issues; such as the high household debt, the imminent drought occurring in certain provinces, the weakness in Thailand's key export markets (e.g. China, Japan and the European Union) and the military rule, which could possibility affect the prospect of the political stability.

This shows that in order for the economy to recover from the recession and to prosper, the government needs to intervene and implement some policies to ensure that these factors are well taken care of. Also, by getting the confidence of people and the businesses on the country's economy.

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There are 3 ways to compute the country's GDP.

Expenditure Approach GDP = C + I + G + (X - M); where, C = consumption expenditure, I = investment, G = government spending and (X - M) = net exports - net imports Income Approach GDP = rental + interest + profits + indirect business taxes + depreciation + wages Production Approach GDP = total sales of goods and services + value of changes in the inventories – value of intermediate consumption

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- Gross Domestic Product (GDP)

- Unemployment

- Inflation & Fiscal Policy

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3 Pillars of Economy - Gross Domestic Product (GDP), Unemployment Rate and Inflation

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3 Pillars of Economy - Gross Domestic Product (GDP), Unemployment Rate and Inflation

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Gross Domestic Product (GDP), Unemployment Rate and Inflation are the primary indicators used to gauge the health of the country's economy; where, -GDP represents the total dollar value of the country's goods and services produced within its boundaries over a specific time period, -Unemployment occurs when a person who is actively searching for employment is unable to work, and -Inflation can mean either an increase in the money supply or an increase in the prices of goods and services.

The GDP figures reported are usually adjusted for inflation. In another word, if the GDP was calculated to be 10% higher than the previous year and the inflation during the same period is 2%, the GDP growth would be reported as 8%, or the net growth over the period.

However, a higher inflation rate will have an exponential effect on prices, as it rapidly erodes the consumers' purchasing power, slowing the economy down, reduces GDP, and will increase the unemployment rate.

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Fiscal policy is the act of the government adjusting its spending levels and tax rates to monitor and influence the nation’s economy, which is a sister strategy to the monetary policy where the central bank influences the nation’s money supply. The government influences the macroeconomic productivity level by increasing or decreasing tax levels and public spending, which in turns, curbs inflation, increases employment rate and maintain a healthy value of money.

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News Article:

Thailand needs to develop labour skills though it has the lowest unemployment rate

(July 1, 2015)

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Despite having the lowest unemployment rate in the world, most of the working age population in the country are still under-performed and need to upgrade their skills and competencies, according to the National Statistics Office (NSC).

The NSC reported that unemployment rate in Thailand reached an all-time high of 5.73 percent in January of 2001 but decreased to 2.1 percent three years later and fell to 1 percent in 2010.

The country's jobless rate has held below 1 percent since 2011 and has remained between 0.6-1 percent since last year, it said.

The latest statistics in April of 2015 showed the country has 38.28 million workforce, comprising 37.53 million employed workers, and 324,000 unemployed workers or equating to 0.85 percent of the overall population. Meanwhile there are 430,000 seasonal workers.

The workforce is still employed by the farm sector. Majority of the farmers do not work full time and are most likely unemployed during the off-season. However, some of them perform casual works and are still counted the employed category.

The NSC said among those employed workers, ate those working in the farming sector of which the majority are not full time workers and will be unemployed after the cultivation season. Some also will do part-time jobs and are still counted in the employed category.

Meanwhile Mrs Roong Mallikamas, Director of the Bank of Thailand's Monetary Policy Group said that the Thai economy recovered on a gradual pace in May, although the unemployment rate remained low and was unchanged from April. Workforce employed in agriculture sector declined due to drought, while declining price of farm products has caused the workforce to shift out of farm sector.

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Thailand needs to develop labour skills though it has the lowest unemployment rate - Thai PBS English News

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Despite having the lowest unemployment rate in the world, most of the working age population in the country are still under-performed and need to upgrade their skills and competencies, according to the National Statistics Office (NSC).

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Limitations of Unemployment Rate Measurement

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Limitations of Unemployment Rate Measurement

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Despite Thailand having the lowest unemployment rate across the world, it may not beneficial for the country’s economy.

There are limitations of the unemployment rate which caused it to be an inaccurate indicator of employment in the economy. Limitations include the omission of discouraged workers, inclusion of the ones who are collecting benefits but not actively job seeking and inclusion of the underemployed.

The black-market activities; also known as the underground economy, involves illegal transactions which government statisticians are unable to track or value accurately, causing it to be omitted from GDP calculations and the ones involved are considered unemployed. Black market activities include the illegal buying and selling of stolen goods, drug and copyrighted material, prostitution, bribery , smuggling, and illegal currency exchange.

This informal sector actually takes more than half, up to 64% of the entire workforce. This shows that most people in Thailand have no systematic work conditions and get irregularly and unevenly paid. Many are not covered by any kind of social security system and have poor knowledge about the need to protect himself socially and economically. This is dangerous to the economy.

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Thailand’s unemployment rate has been decreasing ever since 2001 and had since remained betweeb 0.6% - 1%. Despite having the lowest jobless rate in the world, most of the working age population are still under-performing.

These people need to upgrade their skills and competencies through re-training and re-education, which will enable them to further improve their economic growth, so as to stay employed.

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Relationship between Inflation & Interest Rates

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Relationship between Inflation & Interest Rates

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Inflation refers to the rate at which prices for goods and services rises while interest rates refer to the amount of interest paid by a borrower to a lender, which is usually set by the Federal Reserve.

The key general relationship between inflation and interest rates is:

Nominal Interest Rate = Estimated Real Interest Rate + Inflationary Expectations

Borrowers who make payments based on nominal interest rates, such as an adjustable rate mortgage or a credit card that is priced based on the prime rate, would face a risk as their nominal loan payments will rise with inflation and interest rates.

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Unemployment occurs when someone who is actively searching for a job placement is unable to find work and it is often used as a measure of the health of the economy.  There are 4 types of unemployment namely, frictional unemployment, structural unemployment, seasonal unemployment and cyclical unemployment.

The formula for unemployment rate is:

Unemployment Rate = Number of Unemployed / Total Labor Force

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- Sawadeeka Team Thailand!

Inflation & Fiscal Policy Article

- The article is from good source. Continue to use it.

- Good that your team makes the effort to apply what you've learn in econs class to the project.

- Point on "Inflation within the Article": In this case, the economy is experiencing deflation instead of inflation.

Can team have a look at real interest rate and see how it will affect the lenders (people who save money)?

- Point under "Fiscal Policy within the article": Monetary stimulus refers to monetary policy. In this paragraph that you read, Thailand is using monetary policy (to increase money supply) after introducing fiscal policy (cutting taxes).

Since you have not learn monetary policy yet, it is fine to focus on explaining fiscal policy and how this policy helps to increase GDP. Good work in explaining how this affects consumers and businesses. I would encourage your team to take a step further to think of how it can be illustrated using the keynesian or aggregate demand and supply model.

GDP Article

- This is good too. Keep it.

- To take analysis to the next level, remember to refer to other resources to elaborate the issues/points stated in this article, bring in your personal opinion about the situation, bring in data/comparison with the rest of the world (if there's time) and also apply more of what you have learn in class to explain the situation.

Unemployment Article

- As this article focused on unemployment in highland areas (not the overall unemployment of thailand), should your team choose to use this article, the focus has to be on explaining and possibly addressing this issue.

Updated comments by Wang:

Nice wallpaper! I feel like I'm in a resort looking at your padlet.

Unemployment Article

Ok! The new article has more things for your team to examine and analysis.

Some questions for you to think about and include in padlet (in short points, to elaborate in report):

- Types of unemployment that exists in Thailand

- Think about how informal sector affect the GDP value (yes, you can link this to GDP too).

- Think about how informal sector affects the size of workforce and in turn affects GDP value

Of course, you can feel free to add in more points that you can link concepts learn in econs class to explain the article.

GDP

- I note your team's efforts in highlighting the key points from the articles but you also need to include MORE concepts learn in class to explain and analysis the issue mentioned in this article.

Some questions for you to think about and to include in padlet briefly (short points will do, explain more in report):

- Can the situation be illustrated using the aggregate demand and supply diagram or the keynesian model (see what you wrote about the GDP approach)?

- Some key happenings like oil price falling, changes in tourist industry and government policies.

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News Article:

Economic Recovery depends on Internal Stability

(April 8, 2015)

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2014 was a difficult year for Thailand's economy. Tourist numbers fell due to political tension, manufacturing declined, and private consumption remained subdued. Economic growth for the year on the whole was down to 0.7 percent from 2.9 percent in 2013.

However, a recent rebound in tourism, along with the low price of oil, is expected to initiate an economic recovery. The strength and sustainability of recovery will depend upon how Thailand addresses its problems: high household debt, imminent drought in certain provinces, weakness in Thailand's key export markets (China, Japan, and the European Union), and military rule, which could hurt the prospect of political stability.

Strong Q4 ends year of weak growth

Real GDP grew 2.3 percent year over year in Q4 2014. Government consumption expenditure grew 5.5 percent, picking up from 0.4 percent in Q3. This is in line with the military administration's plan to increase fiscal spending.

However, household consumption expenditure remained weak, decelerating to 1.9 percent from 2.2 percent in Q3. This was mainly because of high household debt and a 1.6 percent contraction in the agricultural sector in Q4. Because approximately 40 percent of Thailand's labor force is employed in agriculture, weak growth in this sector translates into weak consumption expenditure.

Gross fixed capital formation grew 3.2 percent from a year ago. Total investment was driven by private sector investment, which grew 4.1 percent on the back of a recovery in private construction and investment in machinery and equipment. On the other hand, public investment declined 0.3 percent in Q4 even though public construction grew 5.1 percent.

Net exports contributed 3.7 percent to GDP growth in Q4, as external demand resulted in improved exports while imports continued to shrink. The relatively strong performance of the external sector was reflected in manufacturing, which grew 0.7 percent after six consecutive quarters of contraction.

Q4 2014 was the strongest quarter of the fiscal year, but one must keep in perspective the low base of the comparison point: Q4 2013, when the political unrest began. Additionally, the low growth rate of 0.7 percent in 2014 made Thailand the slowest-growing Southeast Asian economy. Furthermore, the problems that plague Thailand's economy are not likely to vanish in the coming quarter.

Slump in consumption

Household debt in Thailand has risen from 60 percent of GDP in 2009 to 85 percent of GDP in 2014. Low interest rates, easy access to credit, and populist schemes such as tax rebates for first-time car buyers have encouraged this trend. The debt-service ratio among farmers is critically high at 52 percent. This means that more than half the disposable income of an indebted Thai farmer is spent on servicing debt payments. Furthermore, the prices of two widely grown crops, rice and rubber, continue to remain low, keeping down incomes in the agriculture sector. Complicating matters further is the looming drought, which is expected to be the worst in a decade. These factors are likely to keep consumption expenditure subdued, particularly among Thailand's rural majority.

The debt-service ratio among farmers is critically high at 52 percent.

Exports unlikely to come to the rescue

The outlook for Thai exports in 2015 is not too bright: The Bank of Thailand forecasts that exports will grow just 0.8 percent in 2015.1 Several factors contribute to this forecast.

Thailand's main export destinations are not doing particularly well. China's growth rate has slowed as the economy is going through restructuring. Japan remains fragile, and growth in the Eurozone is still weak. The only bright spot is the strengthening US economy, but this is unlikely to outweigh weakness in other major export destinations.

In January, exports to China dipped 19.7 percent from a year ago, while exports to Japan and Europe fell 7.5 percent and 5.0 percent respectively. Furthermore, Thailand is now excluded from the European Union's Generalized System of Preferences because it is now classified as an upper-middle-income country. The European Union has also suspended free-trade talks with the Thai military administration and is unlikely to resume talks before the election of a civilian government, which could be as late as 2016.

The strength of the Thai baht relative to competitor nations' currency is another cause for concern. The baht has appreciated 14 percent against Indonesia's rupiah and 12 percent against the Malaysian ringgit from a year ago (mid-March).

Some bright spots

Low crude oil prices, however, have come as a welcome relief, helping slash Thailand's import bill and keeping net exports positive. Lower energy prices should work to the advantage of the domestic economy by encouraging private consumption. Consumer prices in Thailand declined from a year ago by 0.41 percent in January and by 0.52 percent in February. These figures are well below the lower limit of the Bank of Thailand's (BOT) target range of 1-4 percent for headline inflation in 2015.

Declining prices and weak economic growth resulted in the BOT cutting its policy interest rate in March by 25 basis points to 1.75 percent. This was the first reduction in the policy rate in a year. The accommodative monetary policy should provide respite to highly leveraged households as well as encourage private consumption to pick up.

The recent improvement in the tourism industry is another positive. Tourist arrivals were up 15.9 percent from a year ago in January and 18.0 percent from a year ago in the first half of February.2 A surge in the number of tourists from China, Thailand's largest group of foreign tourists, has helped to boost the sector.

Factors that drive progress

While Thailand has posted a mild recovery from its poor showing in 2014, the near-term performance of the economy will depend to a large extent upon internal stability and the strength of the global economic recovery. In the short run, Thailand is expected to reap the benefits of low oil prices, easy money, and a rise in the number of foreign tourists.

However, long-term growth will depend upon how Thailand addresses its internal problems. A resurgence of political instability will put the brakes on economic growth and cause investors to turn their attention to other destinations in Southeast Asia.

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Thailand: Economic recovery depends on internal stability

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2014 was a difficult year for Thailand's economy. Tourist numbers fell due to political tension, manufacturing declined, and private consumption remained subdued. Economic growth for the year on the whole was down to 0.7 percent from 2.9 percent in 2013. However, a recent rebound in tourism, along with the low price of oil, is expected to initiate an economic recovery.

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The Thai central bank had joined at least 30 global peers in providing monetary stimulus this year after the unexpected cut in borrowing cost in March 2015 and it is estimated for the economy to grow 3.5 percent to 4.5 percent in Year 2015 if the exports recover. This shows that Thailand is making use of monetary policies to increase consumers' spending after the introduction of fiscal policy which reduces taxes. By doing so, it helps to boost a flagging economy, maintaining a strong or cool off an overheated economy.

With more money available in the economy and fewer taxes to pay, consumer demand for goods and services would gradually increase, resulting in the rekindling of businesses and boost economic growth.

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The lowering of Bank of Thailand’s one-day bond repurchase rate by a quarter of a percentage point to 1.5 percent was only predicted by 2 of 20 economists who took the survey, indicating that the deflation is highly unanticipated. When unanticipated deflation occurs, there are both winners and losers. In this article, the winners are those who are lending money at an interest rate that is less than the inflation rate and the losers are those who are borrowing money at an interest rate less than the inflation rate. As interest rates drop, consumers will become more inclined to spend money and the increase in consumer spending will in turn, stimulate economic growth.

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Inflation is known as the sustained and continuous increase in the general average level of prices of goods and services in the economy. The occurrence of inflation erodes the purchasing power of money currencies and possessions. There are several types of inflations, such as d eflation, d isinflation, h yperinflation and s tagflation.

The two basic sources of inflation are demand-pull inflation and cost-push inflation.

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News Article:

Thailand Unexpectedly Cuts Rate After Growth Forecast Cut

(April 29, 2015)

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Thailand's central bank unexpectedly cut its benchmark interest rate for a second straight meeting, roiling markets already digesting a reduction in the 2015 economic growth forecast.

The Bank of Thailand lowered its one-day bond repurchase rate by a quarter of a percentage point to 1.5 percent on Wednesday, a move predicted by only two of 20 economists in a Bloomberg survey. The baht slid as much as 0.6 percent, and the benchmark SET index fell as much as 1.2 percent, heading to its lowest close since March 31.

The central bank is using a "strong dose of medicine" because exports may contract, hurting private investment and consumption, which can't be offset by a rebound in tourism and government spending, Assistant Governor Mathee Supapongse said. The finance ministry earlier lowered its forecast for gross domestic product growth this year to 3.7 percent from an earlier estimate of 3.9 percent.

"This cut will not be the magic medicine to heal the Thai economy, which has very weak growth, but at least it will help bolster some confidence among consumers and businesses," said Arthid Nanthawithaya, chief executive of Siam Commercial Bank Pcl. "The rate cut will help weaken the baht and support our exports."

Outflows Rules

Monetary policy committee members voted five-to-two in favor of today's decision, and the central bank said it sees lower-than-estimated inflation and higher risks from the baht's strength on exports. It said it will hold a briefing on Thursday to issue more rules to accommodate outflows as part of an existing plan. It gave no other details.

The economy expanded at its weakest pace in three years in 2014 and has struggled to recover, with exports falling for a third month in March and consumer confidence dropping to a nine-month low. The finance ministry today lowered the 2015 export growth forecast to 0.2 percent from 1.4 percent.

"Thai exports face limitations this year because of the uncertainty in the global economic recovery, especially with China's slowdown," Krisada Chinavicharana, head of fiscal policy at the finance ministry, said before the decision. "We expect the economy to pick up in the second half because of government spending."

Thai consumer prices fell for a third month in March. The last time Thailand experienced deflation in 2009, the benchmark rate was at 1.25 percent.

The Thai central bank joined at least 30 global peers in providing monetary stimulus this year after it unexpectedly cut borrowing costs last month. The government's official forecaster, the National Economic and Social Development Board, last week reiterated its February estimate for the economy to grow 3.5 percent to 4.5 percent this year if exports recover.

(Updates with markets from first paragraph.)

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Thailand Unexpectedly Cuts Rate After Growth Forecast Cut

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Thailand's central bank unexpectedly cut its benchmark interest rate for a second straight meeting, roiling markets already digesting a reduction in the 2015 economic growth forecast. The Bank of Thailand lowered its one-day bond repurchase rate by a quarter of a percentage point to 1.5 percent on Wednesday, a move predicted by only two of 20 economists in a Bloomberg survey.