The Overall Economic Impact of Minimum Wage Increases

Abstract

The purpose of this research article to empirically analyze the impact of the minimum wage rate on provincial economic growth, utilizing GPPPC and GPPPC_CVM (chain-volume measure) as proxies for current and real economic output, respectively. The analysis employs Balanced Panel Data and the Panel Least Squares (Fixed Effects Model) method, incorporating Cross-section weights (PCSE) standard errors for statistical robustness. The analysis reveals a positive and highly significant statistical relationship between the MWR and provincial economic growth across both current and real output measures. Specifically, the elasticity coefficient is 0.875649 for GPPPC and 0.434522 for the real measure GPPPC_CVM. This outcome supports the main hypothesis that raising the minimum wage can stimulate the economy by boosting aggregate demand and household purchasing power. However, the relationship in both models is inelastic (less than unity). Crucially, the elasticity for the real output measure 0.434522 is nearly halved compared to the current output measure. This discrepancy indicates that the real benefit (Real Effect) derived from demand stimulation is significantly attenuated by the adverse impact of rising production costs (Supply Side) and subsequent domestic price inflation. Despite the cost effects, the net result at the aggregate provincial output level remains positive, which contrasts with the predominant focus on negative cost impacts in much of the existing Thai literature.