Aging and the labor market in Thailand

The COVID-19 outbreak has created significant challenges for Thailand’s labor market. The COVID-19 outbreak led to significant employment losses in the first half of 2020 and a decline in hours worked. The labor market recovered in the second half of the year, but additional virus waves and transmission control measures have interrupted the recovery.

The outbreak has weakened a labor market that was already facing challenges. Labor force participation has been declining, the shift of jobs out of the low-productivity agriculture sector has slowed, and informality is the norm. Thailand’s workforce has not transitioned to the types of jobs involving non-routine tasks and interpersonal communication that increasingly characterize knowledge-driven economies.

These difficult labor market conditions are complicated by a rapidly aging population, which will affect how Thailand can address its labor market challenges. The working-age share of Thailand’s population is projected to decline from 71 percent of the population in 2020 to 56 percent in 2060. This is equivalent to a decline in the working-age population of nearly 30 percent, the third largest decline in the East Asia and Pacific region. Meanwhile, the share of the population 65 or older is projected to rise from 13 percent in 2020 to 31 percent of the population in 2060—the 22nd largest share globally. This aging is occurring quickly: the 65-plus population in Thailand doubled between 2000 and 2020 and will double again by 2040 to 26 percent of the population.

Thailand is less wealthy than other countries were at similar stages of population aging, meaning that fewer resources are available to confront the challenges of aging. The report Aging and the Labor Market in Thailand shows that, at every stage of aging Thailand has had lower GDP per capita than the global average. Indeed, the East Asia and Pacific region’s older economies had GDPs per capita twice the level of Thailand’s when their elderly dependency ratios were the same level as Thailand’s.

Population aging has significant implications for Thailand’s labor market and for its overall economic development. Projections of the potential impact suggest that, absent any adjustments, changes in demographics will lower growth of GDP per capita by 0.86 percent in the 2020s. The report shows that Thailand’s projected demographic changes would lead to a reduction in the overall labor force participation rate of about 5 percentage points between 2020 and 2060 and a reduction in the overall size of the labor force of 14.4 million people (see figure).
 

These negative effects are not inevitable. But addressing them requires changes across labor markets and by people of all ages.

Expansions of Thailand’s labor supply could counteract the shrinking labor force implied by population aging. Increases in healthy life expectancy mean that older people are likely to be able to work longer. The large gap between male and female labor force participation means that there is significant potential to activate the labor supply of women. Migrants have been filling gaps in Thailand’s labor force in recent decades and could be better used to do so in the future.

Simulations undertaken for the report of different scenarios of labor force participation and migration show that higher rates of labor force participation among older people and women and a liberalized migration system could increase Thailand’s labor supply in the long run relative to current projections under population aging. Liberalized migration and increased female labor force participation would have the largest effect. 

Even under these scenarios, Thailand’s labor force will decline as its population ages, implying that the labor force will need to become more productive in order to maintain and improve living standards. This process will require more intensive investment in human capital and adoption of labor-saving technologies that offset labor scarcity.

Policy can help to address the challenges created by population aging. Policy can help to activate the labor supply of older people, women, and migrants. At the same time, policy makers can help to ensure that sufficient investments are made in the quality of present and future workers so that they become more productive. Finally, population aging creates several opportunities, particularly in the care sector but also in the larger “silver economy,” that policy makers can exploit.

• Policies to extend working lives can target older people in urban areas, who tend to retire at earlier ages than their rural peers. Policymakers can consider increasing the retirement age to minimize any disincentives to work and evaluate the effectiveness of existing tax incentives for employment of older people.
• Policies to increase female labor force participation can target women directly, such as by providing training programs that break down occupational segregation, and can activate women’s participation indirectly, such as by increasing the income security of older people and providing paternal leave.
• Improvements to the migration system can help to fill shortages in low- and high-skill occupations. A national migration plan or strategy could set the stage for more predictable migration policy. Changes to the migration system could include allowing migration of longer duration to take advantage of the improved productivity of migrants as they work in a country and incentivizing high-skill migration. 
• A commitment to a lifelong approach to learning can help to stimulate the productivity gains needed as the working-age population shrinks. This effort would involve developing new approaches to technical and vocational education and training as well as nonformal training focused on the needs of individual learners and adapted to labor market demand. Performance-based financing and learner-targeted subsidies and vouchers are important approaches to consider.
• Opportunities created by aging can be exploited by providing training for workers in the care sector, particularly unemployed and other vulnerable workers, and by complementing investments in services for local older people with those for older people from abroad.