REGIONAL EMPLOYMENT EFFECTS OF MINIMUM WAGE: EVIDENCE FROM A SPATIAL PANEL ANALYSIS IN THAILAND

Abstract

This study examines the effects of Thailand's nationwide minimum wage unification on provincial employment using a Spatial Durbin Model (SDM) that decomposes the total effect into direct within-province and indirect cross-province spillover components. We exploit variation in treatment intensity, measured by the baseline Kaitz index, across 76 provinces from 2007 to 2016. A non-spatial event study reveals positive but imprecise employment responses in the short run (2012–2013), followed by negative responses from 2014 onward. The SDM confirms this pattern and shows that spatial spillovers account for more than half of the total employment response. In the medium run (2014–2016), the total elasticity of formal employment is -1.25, with the indirect spillover component roughly equal in magnitude to the direct effect. Informal employment shows a weaker direct response but significant negative indirect effects, suggesting the informal sector is more sensitive to regional economic conditions than to the province's own minimum wage. The negative labor force response is consistent with migrant workers exiting the labor market rather than migrating between sectors. These results indicate that non-spatial models cannot capture the full regional employment cost of the minimum wage policy. The findings are relevant to the design of Thailand's minimum wage, as they suggest that employment consequences extend beyond any single province.