Minimum wage hike’s unintended consequence

Author: Sutapa Amornvivat, Ph.D.
Published in Bangkok Post newspaper / In Ponderland column 20 September 2017

A few weeks ago, a coalition of labor unions demanded doubling Thailand’s minimum wage from currently 300 baht per day to 700 by 2018. The proposed number aims to meet a living cost, high enough to support two family members, assuming an inflation rate of 3% a year.

Whether this policy is good for the Thai economy is up for debate. The issue of minimum wage has always been social as much as, if not more than, economic. And its unintended consequence to the marginalized groups has already begun.   

We can look to a recent economic research by Grace Lordan and David Neumark for a glimpse of what may come to our economy. The research finds that, increasing the minimum wage could drive low-skilled workers out of jobs faster, replaced by machines. The impact is particularly strong for the most vulnerable, in this context, the elderly and minority in the U.S. This is an example of how some public policies can unintentionally tilt the balance in favor of machines, as humans and machines compete for the same jobs.

With emerging Artificial Intelligence (AI) technology, machine can now self-learn from data and complete tasks like human. It has started to occupy activities that people used to put time and effort in, to now go on autopilot mode. The anxiety against machines that has been around since the industrial revolution has re-emerged and intensified due to the rapid development of AI.

Even without a push from this policy, Oxford University researchers already predicted that almost half of U.S. jobs are at risk of becoming automated within the next two decades. Moreover, a report by the World Economic Forum, “The Future of Jobs,” also sees a trend with AI taking over the world at the start of the Fourth Industrial Revolution. The implication is an overhaul to labor markets globally, as firms begin to weigh costs between using machines and human workers to do the same jobs.

In fact, we are already seeing price of machines go down while cost of hiring workers are generally rising in the United States. Bank of America Merrill Lynch reported that the cost of using a welding robot is three times cheaper than hiring a worker on an hourly basis. At the same time, the cost of building one has dropped almost 30 percent over the past ten years. The cost reduction will not slow anytime soon, as these machines continue to become more efficient.

On top of getting cheaper, machines are now getting better at a wide variety of tasks. The scope of “automatable” jobs is fast expanding. In the past, automatable jobs usually involve physical routine tasks such as manufacturing assembly lines. But, breakthroughs in AI and machine learning now allow for automation of more cognitive tasks such as financial analysis, insurance underwriting, and sales. In the future, automation can expand to truck and taxi drivers, doctors and even a creative job. Indeed, Amazon is building a fashion designer AI by having machines learn from images posted on Instagram and Pinterest.

Although some of these machine-competing jobs may seem far-fetched for Thailand, our path to automation may take place sooner than expected. According to Thailand’s Board of Investment, Thailand’s imports of automation industry rose 8% a year from 2010 to 2014. At present, most of these machines remain in automotive, electronics, food processing factories, where tasks are more physically routine.

The pace of shifting towards automation could pick up as we too are facing rising costs of human workers. The minimum wage hike to 300 baht per day in 2013 caused a 60 percent rise in labor costs in real terms when it was first introduced.

In addition, our population is rapidly aging, and workforce shrinking. Immigrant workers, the go-to alternative for Thai firms, are also facing a tight registration control. These phenomena will soon push the cost of human workers up to the point where automation becomes a viable option to explore.

In fact, an interview of auto makers in Thailand, by the International Labour Organization, refers to the wage hike in 2013 as a “wake-up call to integrate automation.” Electronics makers in Malaysia share similar story as the country introduced a minimum wage in the same year.

With this in mind, raising minimum wage is unlikely to solve the problem of economic disparity. On the other hand, the policy runs a high risk of leaving some workers further behind. Minimum wage increase without improving productivity can outright hurt the very people it tries to help.

A more sustainable remedy is to focus on training or, more appropriately, re-training people to leverage machines in delivering a task.

Today, free training courses are available online. A sales clerk can learn to become an online marketer; a factory worker can learn to write computer codes. Whatever prerequisite skills required are accessible on the internet as well. Guidance in navigating these online contents and perhaps making them available in Thai language could be a combined effort between firms and the government to ease the transition.

At the frontier of technology, we also see a movement among researchers and innovation leaders advocating for development of AI that complements rather than replacing people.  Barbara Grosz, a professor of Computer Science at Harvard University suggests that “human and machine capabilities can add up to more than the sum of their parts.” This is echoed by Microsoft CEO Satya Nadella who say that his company aims to build AI to assist human, not replacing as well. A research group at Google, “People + AI Research (PAIR)” is dedicated to making technology transparent and design AI that incorporates human interactions.

It is likely machine will replace humans in many jobs, disrupting various industries. But it is far from becoming a dystopian future that some has paint out earlier. All things considered, AI can free people away from undesirable tasks – ones that are dirty, dangerous, and repetitive. It will give us the chance to find things we truly care about.

So, rather than holding on to fears of being replaced by machines, we should concentrate our energy on finding a way to leverage them, bearing in mind of side effects of well-intended policies. A safety net in the form of education programs will do a better job at ensuring a stable economy and an inclusive society in the long run, where machines can work alongside us in achieving more together.

SCB launches SCB Abacus to build AI fundamentals and transform the financial sector in Thailand and Southeast Asia

Siam Commercial Bank announced the establishment of SCB Abacus, a wholly owned subsidiary focusing on the development of Artificial Intelligence (AI) technology to enhance business operation efficiency and service quality. Positioned as an AI-powered analytics company, the first spin-off in the Southeast Asian banking industry, SCB Abacus strives to strengthen the capability of Siam Commercial Bank in meeting customer’s needs in a more customized, secure, and faster manner, as well as improving efficiency.  The company’s ultimate goal is to become a leader in AI technology to elevate the banking and financial industry in Thailand and Southeast Asia and to drive AI development in Thailand to the international level.

Mr. Arthid Nanthawithaya, President & Chief Executive Officer, The Siam Commercial Bank Public Company Limited, revealed that “The crucial role of technology and innovation are becoming more visible in the banking and financial sector. Siam Commercial Bank has been aware of this changing trend and has continued to improve customer service to keep up with the digital evolution. This can be seen in the recent launch of the latest version of SCB Easy application and the newly launched Chatuchak Guide application. We will continue to take proactive steps towards innovation development. The establishment of SCB Abacus aims to leverage emerging AI technologies as part of ‘SCB Transformation’ mission to become ‘The Most Admired Bank’, with a focus on using AI and advanced data analytics to enhance business efficiency and service quality.  SCB Abacus is the first spin-off company in the financial sector in Thailand and Southeast Asia fully dedicated to AI, a key enabling technology that helps SCB build an exponential growth to its innovation and service development capacity, as well as better meet business and financial needs of diversified customers. SCB Abacus is a major milestone in the transformation of banking and financial industry in Thailand and Southeast Asia.”

According to Dr. Sutapa Amornvivat, Chief Executive Officer, SCB Abacus Co., Ltd., “Today AI technology has already been integrated into our daily life, Machine Learning technique, a branch of AI, has long been used to classify spam emails, to make personalized shopping recommendation on e-commerce platforms, and to recognize people using photos posted on social media. Similarly, in the banking industry, AI has been used to detect for credit card fraud, to make investment recommendation by the so-called robo-advisors, and to recognize faces via a facial recognition payment system. The role of AI in enhancing business competitiveness is becoming more apparent. With this in mind, SCB Abacus mission is to develop advanced technology using AI algorithms to unlock capability to gain insights and learn from vast amount of data and to develop new products and services that meet the business needs of Siam Commercial Bank as well as other business organizations. We also look forward to forming partnerships with public and private organizations to drive innovation culture in Thailand towards the Finance 4.0 era and to generate sustainable growth towards the future.”

Key strengths of SCB Abacus that sharpens its competitive edge comprise of:

  • Talent – a strong team of professionals with experience from world-class organizations
  • Support from Siam Commercial Bank – high-impact projects to improve SCB’s service, allowing for best case learning and development of scalable solutions in the future
  • World-class partners – partnership with the Massachusetts Institute of Technology (MIT), opening access to new cutting-edge technology still under development, an advisory panel including leading business gurus and veterans from various industries: Dr. Pailin Chuchottaworn, Dr. Thaweesak Koanantakool, Vilasinee Puddhikarant and Prof. Benjamin Van Roy, Ph.D., contributing to valuable knowledge and experience sharing in driving new innovations

“The fact that Siam Commercial Bank has a massive amount of data in possession means a strong advantage for SCB Abacus in extracting insights for further analysis, learning, and predicting true customer needs,” added Dr. Sutapa.

SCB Abacus has currently started development of several projects for SCB. This includes a recommendation engine for product and service offering integrated within SCB Easy application. Another project, a new service that adopts Internet of Things (IoT) and AI technology in designing personalized insurance product that promotes healthy lifestyle by motivating customers to engage in physical and healthy activities. SCB Abacus is also working on the integration of AI into SCB call center to enable the system to predict the customer call issues in order to connect them to the right contact point, which levels up service quality and customer satisfaction.

“SCB Abacus is keen to develop AI innovation to elevate the service level of Siam Commercial Bank to a new level that can help banking customers achieve their goals through an entirely new experience that is more customized, secure, and faster services. The company also aims to further expand its technology into other business sectors to improve their growth and to lift Thailand’s innovation capability a step further into the international level. SCB Abacus stands ready to propel growth for SCB, riding on our readiness in data resources, strong talent, and world-class partners from diverse background,” concluded Dr. Sutapa.