IS THE THAI LABOUR MARKET SEGMENTED? ANALYSIS USING THE SWITCHING MODEL WITH UNKNOWN REGIME by KUMLAI Jongkon PhD. Student in Economics at Laboratoire d’Analyse et de Recherche Economiques (LAR-efi)

IS THE THAI LABOUR MARKET SEGMENTED? 1. Introduction 2. Human capital and segmentation theories 3. Test of the labour market duality 4. Workers’ distribution by segments 5. Conclusion

Figure 1: Gini and Theil indexes of real wage using data from Labour Force Survey. 1.INTRODUCTION

1.INTRODUCTION. The persistence of the wage inequality and the social damage caused by the economic crisis require a multidimensional study related to the urban labour market. Poverty and the wage inequality can be related to the existence of the dual labour market. Two earnings functions would be more relevant than one wage function.

2. HUMAN CAPITAL THEORY According to this model, the labour productivity arises from the individual characteristics, namely education, experience, on-the-job trainings. The wage inequality is explained by the individual differences in term of accumulation of the human capital. Wages is automatically equalized by the fact that the labour market is perfectly competitive with regard to the wages and the employment. Consequently, the standard model of the human capital is expressed by only one wage equation, developed by Mincer (1964).

2. LABOUR MARKET EGMENTATION THEORY According to the theory of the labor market duality, there are two types of market; the competitive and non-competitive labour markets. The persistence of the wage inequality arises from the various mechanisms of wages determination. There are two wage functions related to the primary and secondary sectors.

2. METHODOLOGICAL OPTIONS Methods of determination a priori of numbers of segments generate problems of the selection and truncation bias when estimating earnings functions. Factor and cluster analysis are criticized by its dependence on types and numbers of introduced variables. Switching method is appropriated when one need to test the existence of two distinct wages functions. It avoids the selection and truncation bias.

3. SWITCHING MODEL

3. DATA This study uses the data from Labor Force Survey, monthly conducted by the Office of National Statistic of Thailand. Variables for wage functions follow the standard wage function of Mincer : schooling, experience (potential), experience 2, experience*schooling. Selection variables refer to Schooling, Highly skilled job (dummy), Size of firm (>50) and Residing in Bangkok (dummy).

3. RESULTS

3. FISRT STEP OF TEST: LOG LIKELIHOOD RATIO For males, 706,6166 in 2002 (=-2 [- 539,7693- (- 186,4610)]) and 722,5692 in 2003 (=-2 [- 642,4238- (- 281,1392)]) which exceeds the critical value of 34,53 at 0.1% risk of error, with 13 degree of freedom. For the females, the values of the log likelihood ratio are 579,9395 and 734,2205 per 2002 and 2003 that also exceed the critical value. the test confirms the duality of the urban labour market in Thailand. The test should be more exhaustive when applying the the goodness of fit test (Dickens and Lang) and/or when using the Weibull distribution (Baffoe-Bonnie).

3. SECOND STEP: DO THOSE FUNCTIONS FOLLOW THE PREDICTION OF SEGMENTATION THEORY?

4. WORKERS’ DISTRIBUTION BY SEGMENTS 0 ≤ probability ≤ 30 Secondary 30 < probability < 70 Non classified 70 ≤ probability ≤ 1000 Primary

4. WORKERS’ DISTRIBUTION BY SEGMENTS

5. CONCLUSION the empirical test of the labour market duality leads to reject the assumption of human capital model according to which there is only one earnings function. The primary sector is overrepresented by people having reached a higher education level and having highly skilled work while the secondary sector is characterized by a substantial number of individuals who obtain a primary education level and having low skilled employment. The pauperization and the persistence of wage inequalities are closely associated to individuals’ incapacity to reach the primary sector through access of social or informational resources.

IS THE THAI LABOUR MARKET SEGMENTED? ANALYSIS USING THE SWITCHING MODEL WITH UNKNOWN REGIME by KUMLAI Jongkon PhD. Student in Economics at Laboratoire d’Analyse et de Recherche Economiques (LAR-efi) University of Bordeaux IV, PESSAC Cedex-France