Structural Transformation — How Does Thailand Compare?

Thailand stands out in international comparison as a country with a high dispersion ofproductivity across sectors. It has especially low labor productivity in agriculture—asector that employs a much larger share of the population than is typical for a country atThailand's level of income. This suggests large potential productivity gains from laborreallocation across sectors, but that process—which made a significant contribution toThailand's growth in the past—appears to have stalled lately. This paper establishes thesefacts and applies a simple model to discuss possible explanations. The reasons include agap between the skills possessed by rural workers and those required in the modernsectors; the government's price support programs for several agricultural commodities,particularly rice; and the uniform minimum wage. At the same time, agriculture plays auseful social and economic role as the employer of last resort. The paper makes a numberof policy recommendations aimed at facilitating structural transformation in the Thaieconomy.