A Study on Internal Labor Movement and Policy Multiplier in Thailand

Abstract

The main objective of this paper is trying to measure the effectiveness of selected supply side and demand side policies on Thai economy by using Computable General Equilibrium (CGE)model. We found that there is a special characteristic of the unskilled labor movement among agricultural sector and other sectors in Thailand and this characteristic can represented by Harris-Todaro expected wage equation. Therefore, we developed the CGE model incorporating Harris-Todaro expected wage equilibrium for the labor market. The simulation result shows that, for selected supply side policy, the reduction of switching cost, increasing labor productivity (which are selected supply side policy), increasing in government spending and export promotion (which are selected demand side policy) can contribute positive impacts to Thai economy. Interestingly, we found that if both the reduction of switching cost and the increasing labor productivity are implemented together, they will generate even more positive impacts to Thai economy than separately implemented. This finding suggests policy maker should implement both the reduction of switching cost and the increasing labor productivity together in order to gain more benefit to Thai economy. These two policies are supply side policy and related to labor market, thus improving labor market is a great choice for Thailand. Lastly, we found that all policies have the similar non-linear characteristic.