Some argue that raising the minimum wage, despite its costs, can potentially promote investment and improves labour productivity. Some prefer to provide direct fiscal incentives for firms to invest. Others see public investment as holding the key. The jury is still out as to how successful these approaches will prove to be in catalyzing an investment up-cycle, and ultimately alleviating the labour market issue. Fortunately, the currently conducive macroeconomic environment is already providing ample incentives for businesses to invest. Financing costs are currently low. Strong baht facilitates imports of capital goods. Firms stand to gain more from AEC integration if they carry out their planned investment in a timely manner. Collective efforts by all will also generate positive externalities, and can go a long way in easing the labour shortage problem for all parties. BIS central bankers’ speeches  3  One fundamental force that may exacerbate the labour shortage problem is the demographic change. Slowly but inexorably, the Thai society is aging, as the total fertility rate is consistently lower than the replacement rate. The number of people aged 65 and above will double in less than 10 years. As projected by NESDB, by 2030 the working-age population will fall from the current rate of 68 percent to just over 60 percent, making Thailand’s old age dependency ratio slightly higher than the Asian average. The government can help manage this demographic transition by speeding up the reform of immigration policy, and simplify registration procedure.

The committee recognizes that, in the current environment where growth prospects differ wildly across regions and monetary policy in advanced economies remains ultra-loose, pressure from capital inflows may persist in the medium term. All available policy options are therefore open to considerations. Substantial preparation work has been ongoing to ensure that the right measures can be readily implemented should the situation warrant. Investors seeking long-term presence in Thailand should be reassured that productive capital inflows are still highly valued, and any introduction of measures will be carefully designed to minimize unintended consequences. After all, the goals of these measures are to preserve the financial and economic integrity, the very reason that attracts investors to Thailand in the first place. Structural Impediments Ladies and gentlemen, Macroeconomic stabilization and demand management policy can only get us so far. The ultimate determinants of long-term growth are tied to the supply side of the economy, namely the deployment of effective capital and labour inputs. It is a pity that the supply-side issues are often overlooked in policy discussion, and action is often limited to structural ‘reform’ that comes too late. By addressing the structural issues early and preemptively, the long-run growth benefits are likely to be more substantial. So let me venture out of my familiar territory, and devote the rest of my talk to discuss one key structural issue facing the Thai economy – the labour shortage. Unemployment is persistently low in Thailand, and is not very sensitive to the business cycles.