The Minimum Wage Effects on Earnings and Sorting
Thailand’s introduction of a nationwide minimum wage hike in 2012–2013—an increase of over 40%—had significant impacts on worker earnings, employment dynamics, and the sorting between workers and firms. Using matched employer-employee data and a semi-parametric model that accounts for heterogeneity in both wages and mobility, the study finds no disemployment effect on workers already employed before the policy. However, it detects adverse effects on long-term unemployed individuals, whose re-employment prospects worsened. The policy reduced positive sorting in new job matches and triggered a reallocation of workers from low-productivity to higher-productivity firms, as many low-type firms exited the market. Earnings rose across all worker types, with mobility playing a significant role in short-term gains. Yet, post-policy job transitions negatively affected some groups, making long-term outcomes ambiguous. Simulations show that despite mobility-related frictions, the policy led to substantial long-term improvements in the net present value of workers’ lifetime income over a 20-year horizon.