Charles Dennery
OECD Economic Surveys: Thailand 2025
Abstract
More than half the workforce is in informal employment and informality is particularly prevalent in agriculture and low-skilled services. Tackling informality requires a comprehensive strategy to improve the incentives for formalisation among firms and workers. Social protection coverage should be expanded, while limiting non-wage labour costs to strengthen formalisation incentives, including for the self-employed. Reforms will also need to promote employment among senior workers. Simplifying business regulations and employment protection legislation can help increase formalisation among businesses, along with stronger enforcement. Boosting human capital through better education can also accelerate the shift to better-paying formal jobs.
Despite visible improvements over the past decade, informal employment in Thailand remains widespread with more than half of the workforce estimated to be in informal types of employment (Figure 4.1). According to Thailand’s 2024 Informal Employment Survey, 21.1 million individuals (52.7%) were employed informally, compared to 18.9 million (47.3%) in formal jobs. The Informal Employment Survey defines informality as the absence of contributions to social protection, which is slightly narrower than the definition applied by the International Labour Organisation (ILO) (see the note in Figure 4.1). Under the ILO definition, informal employment also includes own-account and unpaid household workers, employees in the informal business sector, as well as informal workers in formal firms (Box 4.1). Informality is particularly high in agriculture and low-skilled services.
Note: Panel A uses the ILO definition of informality, which includes all workers in unincorporated enterprises that produce at least partly for the market and are not registered, including: (a) own-account workers, employers, or members of producers’ cooperatives employed in their own informal sector enterprises; (b) contributing family workers, irrespective of whether they work in formal or informal sector enterprises; or (c) employees holding informal jobs, whether employed by formal sector enterprises, informal sector enterprises, or as paid domestic workers by households. It excludes households that produce exclusively for own final use, subsistence agriculture, and the construction of own dwellings. Data labelled as 2018, Agriculture and Non-agriculture refer to 2017, 2018 or 2019; 2023 refers to 2022, 2023 or 2024. In Argentina, as opposed to the other countries, the survey is only conducted among urban households and does not cover rural ones. Panel B, based on Thailand’s Informal Employment Survey, defines informality as the absence of contributions to social security. As such, it includes informal employees in formal firms but excludes own account workers and contributing family members who choose to enrol in one voluntary scheme.
Source: International Labour Organisation, ILOSTAT database; National Statistical Office, Informal Employment Surveys 2006-2024.
Widespread informality, a common feature of emerging economies, acts as a drag on economic performance and socioeconomic inclusion. First, it implies reduced fiscal revenues and consequently less capacity to provide public services and investments in physical as well as human capital. Informality also implies higher nominal tax rates on formal workers and businesses, which undermines tax morale and trust in institutions. Furthermore, informality exposes workers to job insecurity and vulnerability to individual and aggregate shocks as these workers often lack – or only have partial – access to social protection, insurance systems and workers’ representation. While families and local communities may have traditionally provided implicit forms of social protection in the past, migration from rural to urban areas and demographic developments reduce these cushions and increase the exposure to income risks.
Additionally, informality has implications for firm productivity. Informal businesses are predominantly on a small scale, engaged in low-tech economic activities; they are less likely to invest in their workers’ human capital than formal firms who can build a lasting, mutually beneficial employer-employee match which can be secured through a formal contract. Avoiding tax regulations and regulatory compliance may allow unproductive firms to remain in the market and compete against more efficient firms, leading to an inefficient allocation of resources. Conversely, productive informal firms may lack access to financing or limit their size or physical investments to avoid detection, which also leads to inefficient resource allocation. The difficulty to enforce contracts may also lead to insufficient economic specialisation and limited performance.
Informality typically refers to hidden economic activities that are unmeasured or untaxed, but there is no unique definition or measure for it (Andrews, Caldera Sánchez and Johansson, 2011[1]). For instance, one may assess the size of the informal economy through the proportion of workers that are not covered by mandatory contributions to social security and pension schemes, or by the amount of transactions that evade income or consumption taxation (OECD/ILO, 2019[2]). The absence of a single definition reflects that informality takes different forms. In Thailand as in other countries, the informal economy includes the following:
Informal employees: employees on an informal basis by a firm whose production is fully or partly informal. This includes jobs that may not be declared to tax and social security authorities or may not comply with labour regulations. It includes involuntary informal workers who would prefer to work in the formal sector, and those who are satisfied with informal employment.
Informal self-employed workers: own-account and domestic workers who operate completely informally, as well as individuals that derive part of their income from undeclared work to avoid taxation.
Informal production by firms: firms who do all or part of their business “off-the-books”, under-report their revenues to reduce or evade VAT and/or corporate income tax liability, and hire informal employees. Some of these firms are startups testing a business, others are “getting by”. This category also includes illegal activities.
Important steps have been taken internationally to enhance the capacity to measure, understand and compare informality across countries. The 2023 “Resolution concerning statistics on the informal economy”, adopted at the 21st International Conference of Labour Statisticians, provides ,among other improvements, a new classification (Table 4.1) that better distinguishes prohibited and unauthorised activities (e.g. drug trafficking vs construction without a permit), and it introduces a category of dependent contractors (Frosch, 2024[3]). Thailand has been conducting detailed informality surveys for many years and should engage with the ILO and other statistical bodies to encompass this new methodology.
Hussmans matrix under the 2023 ICLS Resolution, by sector and type of employment
Note: Shaded cells correspond to combinations that do not exist.
Source: adapted from (Andrews, Caldera Sánchez and Johansson, 2011[1]), (OECD/ILO, 2019[2]), (Frosch, 2024[3])
Yet, accessing formal jobs can be difficult for low-productivity workers for whom social contributions and taxes can act as strong disincentives. Hence a careful mix of enforcement and incentive measures is necessary to tackle informality and move activity to the formal sector. This chapter first describes the multifaceted nature of informality, and framework conditions for formalisation (human capital, institutions, etc.). It then discusses incentives to promote formalisation among workers – notably by reforming social protection – and among businesses – especially smaller ones. A final section discusses enforcement measures for tax and labour laws.
Informality is strongly correlated with the economic sector and the type of work arrangement. In Thailand the vast majority of formal workers who contribute to social protection comprises private-sector and government employees, while the vast majority of the informal sector comprises own-account and unpaid family workers (Figure 4.2). Conversely, nearly 80% of workers in formal-sector establishments are formal. Meanwhile, 90% of workers in the informal establishments are informal (formal employment in the informal sector can arise, for instance when the person chooses to self-register in voluntary social protection). Between 2012 and 2024, the increased number of formal workers has been largely driven by a sharp increase in the number of private employees from 11.1 million to 14.5 million, while the number of informal unpaid family workers has fallen from 9.4 million to 6.1 million. At the same time, the number of informal private employees has fallen by about 40% from 1.9 million to 1 million.
The number of informal own-account workers decreased from 12.4 million to 11.6 million between 2012 and 2020, before increasing again to 12.8 million in 2024. Concurrently the number of formal own-account workers increased from 0.2 million in 2012 to 1.4 million in 2022 before decreasing to 0.7 million in 2024. The increased formalisation of the self-employed between 2020 and 2022 partly reflects exceptional incentives during the COVID-19 pandemic (see section 4.4.1), and the increase was partly reversed when the policy was not renewed. While formalisation has increased modestly among own-account and contributing family workers, about 95% of them remain in informality in 2024, while about 95% of private and government employees are formally employed.
Note: Other is the sum of employers and members of producers’ cooperatives.
Source: National Statistical Office (2024).
4.2.1. Older and rural workers are more likely to work informally
Informality varies across regions, largely reflecting differences in urbanisation (Figure 4.3). In the 2024 Informal Employment Survey, the rate of informality in Bangkok was half of that in the rest of the country (26% vs. 53%), and it is one third lower in municipal areas when compared to non-municipal areas (40% vs 63%). These differences largely reflect that the agricultural sector is more prevalent outside of the capital and in non-municipal areas, especially in the Northern and Northeastern regions. Still, informality rates in peripheral areas, where enforcement is possibly more limited and the benefits of formalisation less visible, remain more elevated across most sectors, within agriculture and outside of agriculture.
Informality is more concentrated among those aged below 24 and above 45 (Figure 4.4). In 2014 as in 2024, the rate of informality of the 25-29 cohort is about one-third smaller than the 15-19 cohort, and one half smaller than the 55-59 cohort. Between 2014 and 2024, informality rates did not substantially decrease for age groups below 35 – which already had comparatively low informality rates – but saw significant reductions for age groups between 35 and 55. A sizable number of prime-age (25-44) workers who had a formal job in 2014 managed to stay in a formal occupation 10 years later, thus decreasing the rates of informality among the 35-54 in 2024. The pattern of formalisation across the life cycle remains partly driven by the type of jobs occupied across age groups: the share of mostly informal family workers is highest below the age of 25, while the share of own-account workers increases steadily with age. Hence, policy effort should ensure, in particular, that youths have access to formal employment, and that formal workers can remain in their formal job arrangements as they age.
Informality rate, by region, municipal vs non-municipal area and agriculture vs other sectors, 2024
Source: National Statistical Office (2024).
Source: National Statistical Office (2024).
4.2.2. Informality is concentrated in agriculture and low-productivity services
Disaggregated data by sector reveal that informal employment in Thailand remains heavily concentrated in agriculture, which accounts for over half of all informal workers (54%, or about 11.4 million persons) and where more than 90% of workers are informal. The service and trade sector accounts for a further 36%, while industry represents a relatively smaller share of 10% (Figure 4.5).
While informality is most prevalent in low- and middle-skilled occupations, it is not limited to them. A notable share of professionals (8%), technicians (10%), and manufacturing workers (plant and machine operators, 21%) are also engaged in informal employment, according to the 2024 Informal Employment Survey (Figure 4.6).
Informality is typically associated with lower gross wages and more heterogeneous working hours (Figure 4.7, Panel A). Under Thai law, workers can normally work a maximum of 8 hours per day and 48 hours per week (7 hours and 42 hours in dangerous establishments), but the enforcement of this norm is largely restricted to formal activities. While nearly 70% of formal workers work ‘standard’ hours (between 40 and 48 hours a week), this is the case of only 40% of informal workers, who are more likely to work longer (above 48 hours) or shorter workweeks. Less than 4% of formal worker reported a workweek below 35 hours a week, versus 25% of informal workers. Women are overrepresented only marginally in part-time employment, hence part-time employment is unlikely to be driven mostly by child-raising considerations. It is possible that the low prevalence of part-time contracts is partly a cultural preference, if formal jobs are seen as necessarily entailing normal hours, while part-time activities are seen as casual and expected to be carried out informally. It may nevertheless also be tied to labour market regulations such as the definition of the minimum wage (see section 4.5.3).
Note: Share of informal arrangements is the sum of the share of self-employed (without employees) and unpaid family workers, by occupation.
Source: Informal Employment Survey and Labour Force Survey, National Statistical Office (2024).
Note: The share of informal arrangements is the sum of the share of self-employed (without employees) and unpaid family workers, by occupation.
Source: Informal Employment Survey and Labour Force Survey, National Statistical Office (2024).
Informality is also associated with lower wages across all sectors, for men and women (Figure 4.7, Panel B). This is partly due to informal workers paying little or no taxes and social security contributions. In addition, the gap likely reflects a combination of shorter average working hours and a composition effect within sectors. Some of the more productive occupations in manufacturing and services are more likely to be carried out by formal employees while more basic tasks are carried out by informal or casual workers. Because informality is prevalent in low-skilled sectors with low productivity, boosting human capital is part of the strategy to reduce it, along with robust enforcement and incentives measures, as discussed in the rest of the chapter.
Source: National Statistical Office (2024).
Education and skills are key drivers of informal employment. Skilled workers are more productive (Andrews, Égert and de la Maisonneuve, 2024[4]; 2025[5]) and tend to work in better-paying jobs that are also more likely to be formal (Figure 4.8). Education not only increases workers’ human capital, but it also allows them to build on it continuously within an employer-employee relationship. Increasing educational attainment can hence reduce informality. It can also boost productivity, which is crucial in an ageing society that needs to maximise the quality of labour supply. Because of Thailand’s demographic transition and low fertility, it is also crucial to increase employment among older workers and ensure that raising children is compatible with women’s participation in the labour market.
Source: National Statistical Office (2024).
Educational attainment has increased markedly over past decades. Consequently, the share of the population with at least an upper secondary degree (general or vocational) is much higher in younger than older cohorts (OECD, 2021[6]). Yet, adult skills show scope for improvement in international and regional comparison. In the 2023 Global Talent Competitiveness Index (GTCI) compiled by INSEAD (2023[7]), Thailand ranks 79th among 134 economies. This ranking is similar to that of Vietnam, Indonesia and the Philippines, but far behind that of Malaysia, for instance (38th place). More specific GTCI indicators rank Thailand 81st in terms of vocational and training skills and 68th with respect to general knowledge skills. Improving tertiary and vocational education, along with lifelong learning, is key for upskilling the workforce and avoiding that skills or degree mismatches raise unemployment or informality among educated workers. Skills and labour market policies have seen some progress in areas that were highlighted in the 2023 Survey (Table 4.2).
4.3.1. Improving education outcomes
The rise in educational attainment over the past decade has strongly contributed to a reduction in informality, as more educated workers tend to work in better-paying jobs that are also more likely to be formal. Between 2014 and 2024, the prevalence of informality for each level of educational attainment was largely constant, with a slight decrease at primary and secondary attainment, and a slight increase at other levels. Hence the fall in informality over the period was mostly due to a composition effect towards a more educated workforce (Figure 4.8). Continuous improvements in educational attainments and skills are therefore a promising avenue towards further reductions in informality. Expanding lifelong learning and the recognition of acquired skills for individuals with limited formal education can also reduce informality and foster transitions into formal jobs, particularly in rural areas.
The performance of the Thai school system has ample scope for improvement. As elsewhere, learning outcomes in Thailand have been deeply impacted by the COVID-19 pandemic. The OECD’s Programme for International Student Assessment (PISA) assesses the learning outcomes of 15-year-old students in mathematics, reading, and science. According to the latest results, Thailand’s performance declined between 2018 and 2022, as in most OECD countries (OECD, 2023[8]). This is largely due to pandemic-induced school closures (OECD, 2023[9]), though outcomes were already stagnating before 2018. In 2022 as in previous years, student achievements in reading, mathematics, and science were substantially higher in Thailand than in Indonesia or the Philippines, but significantly lower than in Vietnam or the OECD average (Figure 4.9). About a half of Thai students are low-performers (below Level 2) in science, and about two-thirds are low-performers in mathematics and reading. These rates are more than twice the OECD averages, and almost no students have high-performance (Level 5 or above) across all three subjects.
Note: OECD is the OECD average. Caution is required when comparing estimates for Viet Nam based on PISA 2022 with other countries/economies as a strong linkage to the international PISA reading scale could not be established. The 2018 data for Viet Nam are not shown as they have not yet been fully validated. Due to a lack of consistency in the response pattern of some performance data, the OECD cannot yet assure full international comparability of the results.
Source : OECD, PISA 2022 Database.
The decline in Thailand’s learning performance may be partially related to a fall in education spending over the past decade (World Bank, 2025[10]; OECD, 2023[11]). Education spending has been on a downward trajectory, and the share of government spending allocated to education fell significantly from 16.9% in 2014 to 11.2% in 2022 (Table 4.3). While the fall in primary and secondary pupil numbers over the period is one of the drivers of lower spending, it is not sufficient to explain the sharp fall in the share of GDP allocated to education. Yet, Thailand’s education funding allocation remains comparable to that of many advanced economies, while educational outcomes have not reflected this investment. The persistently weaker student performance, as evidenced in PISA, points to issues of spending efficiency and curriculum design. A strategic overhaul of the education system is crucial to ensure that funding translates into improved educational outcomes (Nattanicha, 2024[12]; Thitiratsakul, 2024[13]).
A new competency-based curriculum was introduced in 2019, first in primary schools, putting a greater emphasis on critical thinking, creativity and collaboration skills. Based on this competency framework, schools are meant to implement an area-based curriculum that takes local contexts into account. Yet, a lack of political support has prevented the official introduction of the curriculum into schools. The new core competency framework has also faced pushback from teachers, who argued that the updated curriculum does not reflect their input and that they were not informed about the planned changes and how they would be affected (TDRI, 2023[14]). A more inclusive approach to curriculum development could help to address such pushback, emphasising the active role and input of teachers, as well as providing them training to implement the new curriculum and raising awareness about the need to keep educational curricula relevant (OECD, 2025[15]).
Note: *No data is currently available on education spending as a percentage of government expenditure for 2023.
Source: World Bank World Development Indicators
There are large regional differences in student performance and educational attainment, partly due to varying degrees of school attendance. Primary and lower secondary education are compulsory in Thailand from age 6 to 15. While primary school attendance is virtually universal, significant gaps remain in lower secondary levels, with a sizable fraction of school dropouts, especially in rural areas and among poorer pupils. Thailand’s education system faces significant inefficiencies in resource allocation due to the prevalence of small primary schools with very low student-teacher ratios and undersized classes – and hence high costs per student. Many of these schools struggle to deliver quality instruction across all grade levels. Teachers and educational resources are overstretched across many small classes, leading to widespread teacher shortages and diminished educational quality. Thus, low pupil-teacher ratios in Thailand reveal a misallocation of resources within the system, which is exacerbated by a lack of educational materials (World Bank, 2023[16]). As argued in the 2023 Survey (OECD, 2023[11]), reallocating resources by merging some of the small schools could improve educational outcomes and competencies. However, this might require additional investments in public transportation for pupils, if schools are stretched far apart. Improving teacher training – both initial and lifelong – and teaching material, as well as teacher pay is also important.
4.3.2. Strengthening skills development
Skill development programmes can help towards strengthening job formalisation. Vocational education and training (VET) provide a key channel for access to skilled, well-paid jobs with career progression especially for school leavers who might otherwise be in low-paid and informal employment. Across the OECD, upper-secondary VET graduates have higher employment rates than graduates of upper secondary general degrees or lower secondary degrees (OECD, 2024[17]). The same ranking is observed for employment rates and salaries in Thailand.
Thailand’s VET enrolment is on a par with peers but falls short of policy targets. About one-third of Thai upper-secondary students follow vocational certificate programmes (Figure 4.10), while nearly one-fifth of post-secondary learners are enrolled in diploma-level vocational programmes. The share of upper-secondary students in the VET track is similar to rates in countries like Indonesia and the Philippines and slightly below the OECD average of 37%. However, the share is well below Thailand’s own target of a 60:40 ratio of vocational to general education. In contrast, some European countries such as Finland, Slovenia and Czechia reach VET participation rates as high as 70%, with Germany and Switzerland also showing strong uptake (OECD, 2021[6]). Despite Thailand’s ambitious targets to expand participation in VET, enrolment figures remain low. Multiple factors contribute to this, including financial constraints, concerns over the quality of provision, and the relatively low social prestige associated with vocational pathways.
Thailand’s vocational education is concentrated in two broad areas, with a majority of students enrolled in industry-related, business administration and commerce programmes. In 2019, 50% of VET students in upper secondary education were enrolled in industry-related programmes and 35% in business and commerce. Conversely fields such as information technology accounted for only 1% of enrolment, despite its growing significance across all sectors of the economy, while agriculture and tourism accounted for 3%, and 5%, respectively (OECD, 2021[6]).
Share of all students in upper secondary education enrolled in vocational programmes (%)
Note: The latest data for Finland, Slovenia, Switzerland, Australia, Germany, Mexico, New Zealand, Japan, Korea, Brunei Darussalam, and Chile refer to 2023. Data for the People’s Republic of China, the Philippines, the OECD, Malaysia, and India refer to 2024. Data for Türkiye refer to 2022.
Source: UNESCO Institute for Statistics (2025).
Despite the concentration in two broad areas, responsibility for Thailand's VET system is divided among various ministries, agencies, and training providers. The Office of the Vocational Education Commission (OVEC) is the primary institution overseeing the system. Other ministries also run sector-specific programmes, such as logistics and transport training by the Ministry of Transport and hospitality programmes by the Ministry of Tourism and Sports. These Ministries operate under the overarching framework and guidelines established by OVEC, but the coordination provides further scope for improvement. The system includes various types of college, such as technical, vocational, and agricultural colleges, with significant size differences. Along with limited resources in terms of teacher quality and teaching material, this fragmented structure creates coordination challenges, limits the involvement of local stakeholders and complicates access for students, negatively impacting the coherence and quality of VET delivery (Chalamwong and Suebnusorn, 2018[18]).
Efforts to better coordinate VET education across ministries should continue. Greater involvement of employers in the design of the curriculum and the governance of the system is also important. The VET system primarily targets the needs of large companies, leaving SMEs underrepresented despite representing nearly 80% of the private-sector workforce. The Demand-Driven Education Model operating in the Eastern Economic Corridor exemplifies recent policy to strengthen employer participation in VET (Box 4.2). Greater stakeholder involvement can improve the employment and salary prospects of VET graduates and reduce skills mismatch (OECD, 2021[6]). Skill needs assessments should be carried out regularly, at the national, regional and local levels. Dual vocational education or apprenticeships have been on the rise over the past decade in Thailand (OECD, 2021[6]) and have the potential to also improve the workforce skills of VET graduates. However, the apprenticeship system needs to be carefully designed (OECD, 2018[19]), and close attention to the quality of placements is needed. To facilitate placements among SMEs, external bodies or larger firms – through joint placements – could be leveraged (OECD, 2021[6]).
Widening the options for continuing education beyond VET courses should be considered. Inter alia, this would improve the perceived status of VET education; school students sometimes see it as a dead-end, not allowing access to further education opportunities (Chalamwong, 2019[20]). In Thailand, upper-secondary VET graduates can in theory progress to both post-secondary vocational diplomas or tertiary degrees. In practice, however, very few of them continue to tertiary degrees (OECD, 2021[6]). Providing better pathways between VET and general tertiary education is not only important for the attractiveness of VET education, but also to make VET graduates more resilient to changing skill requirements (OECD, 2021[6]). Improving the supply and quality of career guidance services in schools would also help in this respect (OECD, 2025[15]). Finally, the rise in the number of tertiary graduates has in some cases led to some oversupply in the labour market, and information campaigns targeted to students in initial education could highlight this reality.
The Demand-Driven Education Model within the Eastern Economic Corridor (EEC) was launched in early 2023. It fosters collaboration between educational institutions and industry partners to co-develop education curricula that are responsive to labour market demands. The programme is supported by government subsidies and tax incentives to facilitate work-integrated learning experiences. This initiative can potentially help graduates transition more smoothly into formal employment, reducing reliance on informal jobs.
Lifelong learning and retraining can also help to reduce informality among older workers and avoid a fall into informality when a formal worker becomes unemployed. Active labour market policies (ALMPs) can combine professional training with job-search assistance, career guidance and counselling. Smart Job Centres were launched across the country in 2015 to provide online one-stop shop services to jobseekers, and this was complemented during the COVID-19 pandemic with an online platform, “Thai Me Ngaan Tham”. Raising awareness of these government services, including among secondary school students and improving cooperation with local organisations helping people in need, especially in rural areas, is essential, as highlighted in the 2023 Survey. Thailand has launched a pilot scheme, the Youth Guarantee, targeting young people who are not in education, employment or training (NEET). Inspired by examples from the European Union, the scheme aims to ensure that they do not remain unemployed, work only informal jobs or become inactive altogether. This promising model should be gradually expanded.
Reskilling programmes will be required to ensure smooth and efficient reallocations of labour arising from the green transition (OECD, 2024[23]; Causa et al., 2024[24]). In collaboration with companies and stakeholders, the government should identify specific skill gaps within affected sectors, where funding and incentives can help companies invest in employee training. These training programmes should be tailored to the needs of each sector and made accessible for employees at all skill levels. Encouraging a culture of continuous and lifelong learning is key to ensuring employees remain competitive in the industry. For informal workers, Thailand could introduce targeted subsidies to support training in sectors with high levels of informality and implement outreach campaigns to raise awareness among informal workers about learning opportunities and their benefits (OECD, 2025[15]).
4.3.3. Fostering gender and age equality in the workplace
Informality is less prevalent among women than among men. This partly reflects Thailand’s good performance in terms of gender equality in the workplace; the gender gap in labour force participation is higher than in Viet Nam, Cambodia and many OECD economies, but much lower than Malaysia, Indonesia, the Philippines and other emerging market economies (Figure 4.11). While the low degree of informality among females may also be tied to domestic work being insufficiently accounted for in labour force data, there is no evidence that women are systematically discriminated against in terms of access to formal jobs. Women also have slightly higher rates of tertiary education and wage gaps for similar work are also relatively small (OECD, 2021[6]; World Economic Forum, 2023[25]). Yet, public policy should ensure that women are not discouraged by gender stereotypes in their choices of study and career. Having role models among entrepreneurs and firms of various sizes and sectors can be a good way to encourage young women to pursue new areas that they would not have otherwise considered (OECD, 2021[6]). Finally, gender equality in the workplace should also ensure that women are not discouraged from combining work with family life. A more equitable sharing of domestic work between men and women could also help in relieving pressure from women. A scarcity of part-time formal jobs may prevent women from raising children while working or push them into informal jobs where these constraints do not apply.
Note : In Panel A, ASEAN countries are highlighted in green, and the gender gap corresponds to the percentage points difference between male and female labour force participation rate.
Source : ILO (2025), ILOSTAT database; NSO (2024).
Informality is higher among older workers than younger cohorts (Figure 4.11, Panel B). This corresponds partly to a composition effect – younger workers being more educated and taking jobs in manufacturing or services that tend to be more often formal than in agriculture. But it is also the result of age discrimination, which remains widespread in Thailand (Moroz et al., 2021[26]; Pruksacholavit, 2025[27]). As the population ages – and especially if the retirement age is eventually increased – it is important that senior workers are not left behind, unemployed or surviving on low-paying informal jobs. As argued in the previous Survey (2023[11]), Thailand should follow the example of OECD countries which have all banned old-age discrimination. Explicit references to age limits in job advertisements should be prohibited and public awareness should be raised. Pledges from large companies could act as role models for smaller ones, in maximising the value added of experienced workers.
The design of social protection and its financing is a key factor for formal job creation as it affects both the incentives for becoming formal and the cost of creating formal jobs. Social protection reforms can therefore go a long way to reduce informal employment, as evidence from Latin America and other emerging-market economies has shown (Arnold et al., 2024[28]).
4.4.1. Thailand has built a sophisticated but fragmented social protection system
Thailand established contribution-financed social security (health, pension, disability etc. see (Table 4.4) throughout the formal private sector in the 1990s. The main social security scheme, called Section 33, was established under the Social Security Act in 1999 and extended to all private-sector employees in 2002. It provides formal private-sector employees in registered enterprises with old-age pensions (for those aged above 60) and healthcare insurance, and since 2004 also unemployment benefits. Civil servants and employees of state-owned enterprises are covered by a separate contributory social security scheme, which is characterised by a high fiscal cost of around 1.7% of GDP. Benefits under this scheme are higher than those of private-sector social security.
Thailand also maintains two voluntary contributory schemes (Table 4.4). One scheme, Section 39, allows former Section 33 participants who lost their job to continue contributing while unemployed. Another scheme, Section 40, for the self-employed provides different combinations of pensions and healthcare, with pensions being paid-out as a lumpsum upon reaching retirement age. During the pandemic, the government made remarkable progress in boosting participation in the Section 40 scheme through an exceptional cash transfer of THB 10 000 (USD 300) conditional on applicants’ participation in the scheme. The main purpose was to reach out to informal workers who were severely affected by the economic downturn, and it temporarily increased enrolment among self-employed and family workers. However, regular contributions did not increase and most of the new registrants stopped contributing shortly after receiving the one-time payment. This measure was therefore not a long-term success with regards to increasing coverage.
Social security benefits are now available to contributing formal-sector employees and, on a voluntary basis, to all former formal employees and to self-employed workers who wish to pay social security contributions in return for benefits. However, these formal-sector workers amount to only 50% of the workforce, substantially less than in other countries, especially advanced economies (Figure 4.12). The exclusion of a large share of the population from social security benefits is a common feature across many emerging-market economies. Many governments, including Thailand, have therefore complemented formal social security with non-contributory, tax-financed social assistance benefits in recent decades.
A key non-contributory benefit is the Old Age Allowance (OAA), which grants pension benefits to all those aged 60 and above, except for those who are covered by civil servant pensions. As a result, total pension coverage reaches 91%. This progress in coverage, however, has not been matched by progress in benefit adequacy. The basic monthly benefit of THB 600-1 000 depending on age (USD 18-30, or 4-6% of the monthly average wage of THB 17 400), however, is only about 23% of the poverty line of USD 8.30 per day at purchasing power parity for beneficiaries aged 60-69, with slightly higher benefits for those of higher age. At 0.5% of GDP, the fiscal cost of this programme is currently low, but its poverty-reduction impact is high.
Source: (OECD, 2024[29]).
A second element of the non-contributory system is the Universal Healthcare Coverage Scheme (UHCS), which has allowed Thailand to achieve almost universal health care coverage, with a comprehensive benefit package. Launched in 2002, it covers general medical care and rehabilitation services, some high-cost medical treatment, and emergency care for all citizens with no existing healthcare coverage through formal-sector social security schemes.
A third and more recent pillar of non-contributory benefits consists of means-tested in-kind transfers, delivered through a State Welfare Card that allows beneficiaries to make purchases of certain goods at designated stores, up to an amount of THB 300 per individual and month, equivalent to USD 8.50 or 13% of the poverty line. The State Welfare Card is offered to households earning less than THB 100 000 per year (USD 3 000, approximately half of the yearly average wage) through in-kind transfers, but registration is conducted infrequently and targeting errors remain significant (OECD, 2025[30]). Launched in 2017, this card system currently covers 19% of the population (World Bank, 2023[16]).
Social protection schemes have achieved a relatively high coverage ratio in comparison to regional peers (Figure 4.13), largely due to the non-contributory elements, in particular the extensive public healthcare system. Extreme poverty has been largely eliminated, but a relatively high fraction of Thais have incomes below the poverty line even after receiving social benefits, given that many non-contributory benefit levels remain very low.
4.4.2. Reforms could strengthen incentives for formal job creation
Despite sizable progress in expanding social protection – both contributory and non-contributory – over the past decades, significant challenges remain. A fundamental challenge is to strengthen the incentives for formalisation embedded in the design and financing of the social protection system. Another challenge is the low level of non-contributory pensions under the Old-Age Allowance scheme, which fail to provide sufficient income to recipients to lift them out of poverty. Moreover, despite all the advances, universal pension coverage has yet to be achieved. The OAA covers 91% of those who do not receive a civil-servant pension, and reaching 100%, at least of those with no other pension, would provide a more effective social safety net. Finally, the current coexistence of parallel systems has also led to a significant fragmentation of social protection, which makes coordination and cost-effective benefit provision more difficult. Along with its complexity, this fragmentation reduces the incentives to move from informal to formal employment – in particular when access to some of the social insurance benefits associated with a formal job depends on a lengthy vesting period.
Note: Panel A shows the share of the population covered by at least one social insurance or social assistance programme. SEAP stands for South-Eastern Asia and the Pacific. For Thailand, social insurance includes the Social Security Fund (SSF) Articles 33, 39 and 40, Workmen’s Compensation Fund (WCF), Civil Servant Benefits Scheme (CSBS) and the State Enterprises Employees’ Benefits Scheme (SEEBS). In turn, social assistance includes the Child Support Grant (CSG), Old-Age Allowance (OAA), Disability Grant (DG), State Welfare Card (SWC), and government scholarships (Equitable Education Fund (EEF). To allow comparison with ILO estimates for benchmarking countries and regions, the Universal Healthcare Coverage Scheme (UHCS) and other health insurance schemes are excluded, and only social protection cash benefits are included. In Panel B, 'older persons' refers to individuals aged 60 and above; 'vulnerable persons' refers to individuals not covered by social insurance, as defined by (ILO, 2024[31]).
Source: (OECD, 2025[30]) based on 2023 SES data for Thailand, and (ILO, 2024[31]) for peer countries and regions.
Social protection matters for formalisation incentives both through the benefits it provides and through how it is financed. High costs of mandatory social security contributions can be an important obstacle to formal job creation. The prospects of low-income workers to join the formal sector are generally highly sensitive to the additional cost of formal job creation, with social security contributions being a significant part of these non-wage labour costs. This is especially true for informal employees whose productivity may be low relative to both the minimum wage and the associated social contributions in the formal sector. This contributes to perpetuating the current dual labour market where over half the workforce are in informal employment. In Colombia, the 2012 tax reform that reduced payroll taxes and employers’ health contributions showed that reducing non-wage labour costs helps to reduce informality. Impact evaluations suggest that the reform led to a 2 to 4 percentage-point reduction in the informality rate, with a stronger effect on employees than on self-employed workers whose contributions rates were not affected (OECD, 2022[32]).
Participation in the private-sector social security scheme Section 33 is subject to social security contributions, which are shared equally between employers and employees, with an additional government subsidy (Table 4.5). The current joint contribution rate of 10% increases the relative cost of formal job creation, compared to informal hiring. While this rate is still lower than in other emerging-market economies with large informal sectors, it will likely have to rise substantially in light of population ageing, given the already weak financial sustainability of the contributory schemes, especially Section 33. By some estimates, maintaining the current benefit parameters of the contributory pension system would require total contribution rates to rise above 30% (ILO, 2022[33]), or put a very large strain on the general budget. Such a large increase in contribution rates would likely lead to substantially higher informality than at present.
Moving towards a multi-pillar system with lower contributions for low incomes
One way to minimise such disincentives would be to move to a multi-tiered social protection system, with universal basic benefits based on the OAA and UHCS financed by general tax revenues as a first, basic pillar of social protection, with a focus on low-income earners and old-age poverty reduction (Arnold et al., 2024[28]). A universal basic pension, at a higher level than the current OAA, could prevent old-age poverty, regardless of individual work histories in the formal and informal sectors. For those earning close to the minimum wage, this would be the only mandatory pension system covering them, while healthcare would be provided by the UHCS. As a result, mandatory contributions could be very low, potentially starting near zero, given that the main policy focus in this income range should be to avoid disincentives for formal work. Substantially reducing social contributions for low-income workers from the current 10% of gross wages to levels close to zero, while maintaining mandatory social contributions for higher-wage workers in return for a more generous benefit package, would provide basic social protection to the entire population while strengthening incentives for formal employment. Basic tax-financed benefits could also make it easier to provide protection for platform workers, whose number reached nearly 1 million in 2021 (Leenoi, 2021[34]).
Such a reform would eventually require additional general tax revenues for financing a higher basic pension than the current OAA, and to compensate for the contributions of those few low-wage workers who currently pay mandatory contributions. Raising the OAA to the World Bank’s poverty line (THB 2 329 per month in 2023) would cost around 1.2% of GDP (World Bank, 2023[16]) and would reduce poverty by 2.7 percentage points, from a poverty rate of about 6.2%. While this World Bank analysis was conducted on 2019 census data, the cost of the proposed reform as a share of GDP and its impact on poverty is likely similar today. Raising benefit levels initially to half the poverty rate would cost 0.45% of GDP and reduce poverty by around 1.4 percentage points. Targeting of the Old-Age Allowance could be improved by restricting it to those who do not receive a contributory social security pension, not just to those who do not get a civil-servant pension as at present.
More comprehensive pension benefits could be available for those willing and able to pay additional contributions. Section 33 could become a second, contributory pension pillar to provide better income smoothing for those with higher incomes. Contributions for this second tier could become mandatory only for workers with salaries at some distance from the minimum wage, where the argument of minimising formalisation disincentives is less pressing and probably overshadowed by the need for higher benefits that ensure a decent pension replacement rate. The contributory and non-contributory pillars should be seamlessly integrated within the pension system to achieve the desired replacement rates for everyone in an effective way, and to accommodate transitions between the two pillars. For those with incomes above the minimum wage, contributions could rise gradually with wages, avoiding discontinuities that could create incentives for reporting a lower than actual income. This should go along with raising the income ceiling on which contributions are levied, as discussed in Chapter 1. At present the employee and employer contributions do not increase beyond a monthly wage of THB 15 000 (USD 450), which is 87% of the average wage in the private sector.
Enhancing the sustainability of the contributory pillar
Any reform of the section 33 scheme should also include measures to contain costs and improve sustainability, especially in light of population ageing and the resulting substantial sustainability challenges. Raising the retirement age, as discussed in Chapter 1 is one option to contain costs. This would also help tackle informality among elderly workers. Many people in Asia remain active in the informal sector – often in agriculture – after retiring from their formal employment (OECD/ERIA, 2025[35]). This is partly driven by workers who have little incentive to keep contributing after they reached the maximum 35 years of contribution (with a replacement rate of 50%) or who might prefer to receive their pension while working part- or full-time informally. But this low retirement age also drives employers’ attitudes and biases against older workers. By raising the retirement age, private employers may eventually adjust their hiring and work practices, with stronger retraining efforts to keep older workers productive and employed.
The normal retirement age could increase from 55 to 60, or eventually 65, while allowing some flexibility subject to actuarial adjustment. As described in Chapter 1, many countries have provisions for early retirement subject a penalty, or pension deferral subject to a bonus. Some reduce or waive the penalty in some physically demanding occupations, or for medically disabled workers. By giving older workers more incentives to work formally for longer, they will be able to make a trade-off between pension age and pension level within the formal sector, instead of having to exert it within the informal sector, where they enjoy lower wages and employment protection. On the other hand, reducing the minimum contribution period to receive a lifetime pension from 15 to 10 years, would be more attractive for workers with shorter contribution periods, especially those who transition between the contributory and non-contributory pillar.
Reforming the calculation of pension benefits (see Chapter 1) is also an avenue to reduce costs and improve formalisation incentives for older workers. Currently, benefits are based on the last 5 years of salary records. Basing them on lifetime average earnings would enhance sustainability and equity at the same time. The current formula tends to be regressive as workers whose last salaries increase substantially over their working life, which tend to be high-wage earners, obtain a higher internal rate of return from the pension system.
Merging Sections 39 and 40 into one voluntary scheme
Maintaining a voluntary contributory scheme, building on a merger of the current Section 39 and Section 40 schemes, would allow even low-income workers who wish to do so to access a more complete benefit package. Self-employed and inactive individuals currently have access to different schemes with different benefits (Table 4.4). Under Section 39, workers who were formally enrolled in the formal private sector can contribute THB 432 (USD 13) per month to stay enrolled in the Section 33 scheme (except for unemployment insurance), with pension rights calculated on a monthly salary of THB 4 800 (USD 145). Under Section 40, self-employed workers who were never enrolled in Section 33 or declined to enrol in Section 39 can contribute THB 70 (USD 2) per month in exchange for health and maternity/child benefits; if they contribute THB 100 or 300 (USD 3 or 9) they contribute to a lump-sum pension payment at age 60, based on contributions with interest. These two schemes receive lower government subsidies than the formal Section 33 scheme, and the ability for unregistered self-employed workers to benefit from healthcare under the universal healthcare system makes voluntary enrolment less attractive.
Designing an improved voluntary contributory scheme based on a merger of Sections 39 and 40 could be particularly useful for self-employed workers, allowing them to contribute for an intermediate level of benefits, commensurate with their needs and ability to pay (Box 4.3). The unemployed and the self-employed are, for the most part, relatively vulnerable segments of the population, and they will likely be unwilling to pay for health coverage that they would otherwise enjoy without registering. Instead, voluntary enrolment would be more attractive if the scheme included only enhanced pension benefits (and possibly maternity/child benefits) while relying on the UHCS for healthcare. By removing healthcare contributions, the cost of enrolment could decrease from THB 432 to about THB 300 or even less for Section 39 contributors (Table 4.6). As an alternative to lowering the contributions, future pension benefits could be calculated based on a higher reference salary, resulting in a higher pension at retirement age. Either of these two options would improve the cost-benefit ratio and strengthen the incentives for enrolment. Workers currently enrolled in Section 40 could be migrated into the new scheme where they would get a lifetime pension instead of a lumpsum payout, given that the latter fails to provide adequate insurance for longevity.
Note: *Possibly reduced or waived for mothers of young children with low incomes.
** Maximum replacement ratio of 50% for a full contribution period in Section 33, assuming no contribution on a higher wage.
Traditionally, social protection in many countries has focused on salaried employees, leaving self-employed and independent workers with lower or without social protection. This was due to several reasons:
Administrative difficulties, lack of enforcement and third-party reporting. Self-employed workers may face administrative barriers related to the declaration of their incomes, record-keeping, the payment of contributions and the receipt of benefits.
Lower productivity, infrequent incomes and the ‘double contribution’ challenge. Many self- employed workers have low and irregular incomes, especially in some sectors like agriculture. This issue is compounded by the fact that the self-employed pay both employer and employee contributions. In Costa Rica and Cabo Verde, the move towards mandatory enrolment of self-employed workers was thus accompanied by lower contribution rates (ILO, 2023[36]).
Different social protection needs. Traditionally, many independent workers were willing to retire later or not at all, especially among small farmers who rely on their family or local community.
These reasons, and the increasing number of semi-independent workers such as platform workers which blur the line between employees and independent workers, have prompted countries to develop universal, non-contributory basic schemes, as a first pillar of support, alongside a second pillar with separate contributory schemes that cater for different groups.
Source: OECD and (ILO, 2023[36])
The new voluntary scheme could also be leveraged to improve social protection for unpaid family workers. Currently, unpaid spouses are indirectly covered through survivor benefits, but this creates a dependency as they would lose coverage in the case of divorce. By enrolling into the voluntary scheme, unpaid spouses could acquire pension rights on their own instead. A parent who stops working temporarily to raise a child or help in the family would be able to keep accruing pension rights and have greater incentives to return to formal work afterwards. The social security contribution for this enrolment could potentially even be waived and fully paid by the government for some period after childbirth, potentially subject to means-testing.
Basing the calculation of contributory benefits on average career earnings instead of the last 5 years would also be important to strengthen incentives for enrolment in the new voluntary scheme. Under the current benefit calculation, a person who becomes unemployed after having completed at least 15 years in a formal job may end up receiving a lower pension benefit by enrolling voluntarily in Section 39. While the longer contributing period increases the pension benefit, the lower salary average considered for benefit calculation can outweigh this benefit. Similarly, an individual who wishes to switch to working part-time may be unwilling to do it formally as this may substantially reduce the base salary applied for pension benefit calculation.
4.4.3. Improving the governance of unemployment benefits
Unemployment insurance can make formalisation more attractive for workers, but it can also encourage them to move in and out of formal jobs if enforcement does not prevent them from working informally while claiming benefits. Thailand now has a comprehensive unemployment insurance system: Workers who have been enrolled for 6 months in the previous 15 months can claim benefits for up to 6 months if they are terminated. Workers who quit or whose temporary contract is ended get a reduced benefit for up to 3 months. There is scope to accelerate the payment of benefits and the repayment of undue benefits. Currently, workers who find another job and do not report it in time continue to receive the benefits and are often notified of the overpayment only years later, when they lose their job again and the Social Security Office compares the employment record with the unemployment benefits record. Having a more systematic and speedy processing of claims and employment records can help improve unemployment insurance. This can take the form, for example, of an integrated employment database where businesses report, every month, their hiring and separation decisions, with the employee’s details.
Such an integrated employment database could potentially reduce fraud, for example if a worker continues working – but informally – with the same employer after they have quit or have been terminated, while claiming unemployment benefits. This data could also be used to improve the enforcement of labour legislation, by facilitating audits of job separations (see section 4.6). Eventually, a tightening of the eligibility to unemployment benefits may also prove warranted. The enrolment condition could for example increase to 12 months of work in the previous 24 months, while the maximum duration remains capped at six months. Some specific rules for seasonal workers could be used to restrict their ability to claim benefits too frequently. For quits, a waiting period of one to three months may also be needed before the three-months benefit is distributed. Many OECD countries impose such restrictions on unemployment claimants if they quit a job, except in case of good cause.
Informality among firms reduces aggregate productivity through various channels. First, informal firms typically lack the documentation and credit history to secure financing. This restricts their growth potential and ability to invest. Informal firms may also remain small to fly below the radar of tax authorities or labour inspections, which limits their ability to benefit from economies of scale, leading to higher costs and lower productivity. Formal firms are more likely to be integrated into larger production networks, allowing them to collaborate with other businesses and access new markets. Informal firms typically miss out on these opportunities for growth and efficiency. In the informal sector, the lack of legal recognition and enforceable contracts can lead to unreliable business relationships, and hence higher transaction costs and uncertainties. Finally, consumer rights and intellectual property protection regulations are much more difficult to enforce in the case of informal firms, given the very limited possibilities of legal recourse against informal businesses.
4.5.1. Lifting restrictions that drive economic activity into the informal sector
Restrictive regulations and permit requirements can be one obstacle to formalisation (Chapter 2). This will be pronounced where obtaining a formal license is complex and costly and while informal firms without an adequate license may nevertheless continue to operate. Addressing complexity is particularly important for smaller firms, as these often lack the expertise and managerial resources to handle heavy administrative burdens. For non-hazardous activities, simple notification requirements of opening a business, applying silence-is-consent rules that imply that the license is granted unless the administration explicitly rules otherwise, are one example of international best practice. Along with general deregulation and simplification, targeted or presumptive taxation for small businesses, with simplified administrative procedures, may also facilitate the step into the formal economy (section 4.5.3).
Opening more activities to foreign workers would reduce recourse to informal activities by this segment of the workforce. Currently 27 professional activities are reserved exclusively for Thai nationals, comprising activities such as driving, hairdressing, clerical and secretarial work, tour guides, as well as most wood, metal and textile handcraft. In many of these activities, foreigners are merely shifted to the informal sector. There is a strong case for reconsidering these reserved activities and bringing the activity into the formal sector. The quota system for foreign workers also provides a lot of disincentives to formalisation and could be reconsidered.
A similar logic can apply to illegal activities, which are by definition informal. The choice of making an activity legal or not often involves striking a balance between moral, economic and safety considerations. Some activities may bring economic and employment gains while generating negative externalities such as addictive behaviour or criminal activity. At the same time, if bans prove impossible to enforce, making such activities legal may be the best way to regulate them, protect potentially vulnerable workers or clients and minimise the externalities that they may generate. Eventually, such activities can also generate tax revenues and social contributions as they become legal. The rationale for the banning an activity may also have weakened over time and maintaining it may merely benefit specific interest groups, suggesting regular reviews of the scope of activities deemed “illegal”. While for some activities, negative externalities and risks for vulnerable consumers or workers may still be the dominant argument, for others a combination of specific taxation and safety regulations may be more effective.
4.5.2. Reforming employment protection to boost formalisation
Excessive rigidity in the labour market, with stringent labour protection laws, can add to the cost differential between formal and informal job creation, and discourage firms from creating formal jobs in the first place. Amid weak enforcement, some firms may choose to stay fully informal or to keep a fraction of their workforce informal. Other firms may choose to simply hire fewer employees, leading to direct economic losses. Thailand’s employment protection legislation was comparatively stringent in 2015 (Figure 4.14), and the legislation has seen little change since. Severance payments, in particular, are high (Box 4.4). Reforming employment protection may spur the transformation of informal jobs into formal ones in small and medium ones. Furthermore, if these laws are currently more stringently enforced on larger firms than smaller ones, less stringent rules may reduce the disadvantage faced by larger, more productive firms, and lead to labour reallocation and efficiency gains.
The need for strong employment protection in Thailand has, arguably, receded with the development of unemployment insurance. In many developing countries, high severance payments act as a substitute for non-existent unemployment benefits, yet Thailand now has a comprehensive unemployment insurance system (section 4.4.3) and the level of severance payments should be reconsidered. It is also possible that tenure thresholds in severance payments contribute to an artificially high turnover phenomenon around these thresholds. Thailand could consider a smoother schedule, where payments do not jump at certain points of tenure (Box 4.4).
Employment protection index by component, 2013-2019, scaled from 0 to 6
Note: These values are for individual (not collective) dismissals. They take the average of dismissals for personal and economic reasons. Data for Thailand, Indonesia, Argentina, Malaysia, and Brazil refer to the period 2012–2015, while OECD countries were surveyed in 2019.
Source: OECD Employment Protection Legislation Database; national sources.
4.5.3. Finding the right balance for setting the minimum wage
The level of the minimum wage (THB 340 – 400 or USD 10 – 12 per day, depending on the region) may be another factor that contributes to the current levels of informality. While its level represents about 50-60% of the average wage for formal employees who work mostly in the manufacturing and services sectors (Figure 4.7, Panel B), this is not the case when compared to the average wage of informal workers. While the lower wages in the informal sector may be partly tied to part-time work and not fully comparable to the full-time minimum wage, it is clear nevertheless that many informal workers receive wages (or self-employed earnings) that are below, or barely above the minimum wage. Many of these low-earning individuals are not covered by minimum wage laws, because they are self-employed and/or work in agriculture, where minimum wage laws also do not apply. Yet a fraction of these workers do compete with formal businesses with formal employees, and high minimum wages could slow down a long-term shift from self-employment to private employment. In 2012 and 2013, the minimum wage was increased by 39% and 31.7% on average and aligned to THB 300 across the nation (from previously regionally set levels). The effect of this reform appears to be mixed: while earnings have increased on average and the total employment effect has been limited, employment in micro firms and SMEs, as well as for low-skilled workers has seen a decrease, with a partial shift to informality (Lathapipat and Poggi, 2016[37]).
In Thailand, no severance pay is required for tenures below 4 months, one month of pay is applied between 4 and 12 months, but tenures between 1 and 3 years accrue 3 months’ salary, and 6 months between 3 and 6 years. Hence, the employer faces significant discontinuities at 4 months, 12 months and 3 years. The distribution of employment tenure before layoffs should be investigated in detail, but bunching just below these levels would be a strong indication of the detrimental effect of these steps. In many European countries, severance pay is directly proportional to the duration of the employment contract, with little or no discontinuity (Figure 4.15)
Severance pay per year of tenure, in months of salary
Note: This refers to the legal minimum severance pay. Actual figures may be higher for unfair dismissals or as part of collective agreements.
Source: National legislation
Since the large increase in 2012 and 2013, relatively few changes have been made to the minimum wage, but regional variation was reintroduced (Figure 4.16). This helped reduce the share of workers earning less than the minimum wage, in each sector, between 2014 and 2023 (Krungsri Research, 2025[38]). However there has recently been a move to increase the minimum wage to THB 400 per day, which had been a campaign pledge during the last election. The government does not directly set the level of the minimum wage, which is in the hands of a tripartite commission with representatives of businesses, employees and the government. For 2025, the commission limited the increase to THB 400 to certain provinces and businesses. On 1st January 2025, the minimum wage was raised to THB 400 per day (USD 12) for employees in 4-star hotels with at least 50 employees, in five tourist provinces. However, it could be extended to other provinces and sectors in the future. The caution of the tripartite commission should be maintained in the future, and differentiation by province or sector is an efficient tool to account for differences in the cost of living and labour productivity. In Thailand’s dual labour market, unemployment levels should also be used with caution to assess labour market tightness and the likely response to an increase in the minimum wage. An increase in the minimum wage can, in some circumstances, reduce formal employment and push workers into informality, to the extent that unemployed workers become discouraged and stop looking for formal jobs (Samutpradit, 2024[39]).
Minimum wage across provinces and country-wide consumer price index, 2012-2025
Note: The minimum wage increase in 2025 only applies to 4-star hotels with 50 employees or more, in five tourist provinces.
Source: National legislation, (Krungsri Research, 2025[38]), BIS price statistics.
The design of minimum wage regulations in Thailand may also be contributing to informality. Thailand’s minimum wage is defined on a daily basis with no prorated adjustment for part-time work. This may deter some employers from offering formal part-time contracts – which would need to be paid at least a full-time daily minimum wage –, opting instead for informal part-time arrangements. Conversely, mothers and elderly workers wishing to work shorter hours may have to give up their formal job for an informal one. Introducing an hourly definition of the minimum wage could prove mutually beneficial for some employers and employees. If measuring hours worked precisely proves difficult or contentious, half-daily minimum wages for 4 or 5 hours per day (which is the maximum time before a pause must be given) could complement the daily definition, but a simple hourly definition of the minimum wage is probably more effective.
4.5.4. Simplifying taxation and social contributions for small businesses
Implementing a presumptive tax regime (PTR) for small businesses in Thailand, leveraging digital tools, could ease tax compliance and expand social insurance coverage. PTRs are designed to alleviate administrative burdens for tax authorities and reduce compliance costs for taxpayers (Mas-Montserrat et al., 2023[40]). A PTR also has the potential to enhance formalisation. Evidence from Mexico, Costa Rica and other countries point to some desirable aspects that such a PTR could feature in Thailand (Mas-Montserrat, Colin and Brys, 2024[41]; OECD, 2025[30]). Notably, it could include social security contributions (Box 4.5). For instance, own-account and family workers subject to the PTR could be enrolled in Section 39 of Social Security, if the PTR replaces the monthly THB 432 contribution to Section 39 (section 4.4.2), with the government covering the possible funding shortfall. This would provide all social benefits (except unemployment benefits), as well as a lifetime pension – instead of the Section 40 lumpsum – calculated on a reference monthly salary of THB 5 000 (section 4.4.2).
A presumptive tax regime (PTR) is useful for small businesses and self-employed workers who may not keep up-to-date books and face challenges in complying with complex tax requirements. Desirable features of such a regime for Thailand, as detailed in recent OECD analysis (OECD, 2025[30]), should include:
Tight targeting. Incorporated businesses – which are subject to corporate income tax – and professionals (lawyers, doctors, architects, consultants, etc.) should remain outside the scope of a PTR for Thailand. A maximum turnover criterium should also be applied to prevent larger businesses from opting into the PTR. The VAT registration threshold is a natural maximum turnover eligibility threshold for the PTR but is relatively high currently (THB 1.8 million – USD 55 000, or about USD 165 000 in PPP terms); Thailand could consider lowering it and aligning with the PTR eligibility criteria. The VAT and turnover thresholds could possibly distinguish between commercial (e.g. retail and trade) and service activities to reflect differences in profitability (Thuronyi, 2004[42]). Since agricultural products are exempt from VAT – a specific threshold may be warranted, either in terms of turnover or agricultural surface.
Simplicity. Taxing turnover at a proportional rate is relatively simple, and the rate could differ among sectors to account for differences in profitability.
Robust enforcement mechanisms to mitigate the risks of underreporting or misreporting of sales (from one category to another). Minimal lump-sum taxation, per business or per employee, could also be applied as a backstop against underreporting and misreporting. To crack down on turnover misreporting, tax authorities can cross-check information using complementary indicators such as the number of employees, business premises size, years of operation, and water or electricity consumption; discrepancies could then lead to more detailed inspections. Monitoring will also be needed to ensure that currently incorporated businesses do not restructure into unincorporated ones in order to benefit from the PTR.
Incentives to attract the self-employed. For many self-employed workers, social coverage under the PTR would replace voluntary affiliation to Section 40. Yet, for turnovers below the PIT threshold, self-employed may prefer staying out of the PTR, with zero or little PIT and voluntary Section 40 affiliation. To support the attractiveness of the scheme, the social protection benefits included in the PTR should be more generous than the benefits offered under Section 40. For self-employed opting out of the PTR, affiliation to Section 40 could also become compulsory, and the lowest tier of benefits become gradually restricted to the lowest incomes. As a result, most small enterprises and self-employed workers would be enrolled in the PTR, with only the most modest self-employed opting out and staying covered by Section 40.
The PTR should serve as an intermediate step towards full compliance with the standard tax and social security systems, hence its tax treatment should not be overly favourable. To help businesses migrate out of the PTR, temporary relief measures and administrative support could be considered. Eligibility could also be limited in time (e.g. 5-8 years), in which case businesses should be prevented from artificially closing and re-opening.
Source: (OECD, 2025[30])
4.5.5. Promoting the switch from cash to digital transactions
Further shift from cash to digital transactions can help to increase formalisation. Indeed, empirical studies suggest a positive correlation between the use of digital payments and formalisation. One study suggests that a one percentage-point increase in digital payment use is associated with an increase in GDP per capita and a fall in informal employment over a two-year period, by 0.05 and 0.06 percentage points respectively (Aguilar et al., 2024[43]). Over the past few years, the COVID-19 pandemic and the development of digital payment infrastructures has led to a decrease in cash as a means of point of sale (POS) transaction. According to the 2024 Global Payments Report (Worldpay[44]), cash represented 46% of POS transactions in Thailand in 2023 – the world’s second largest after Nigeria – down from 68% in 2019. By 2027, this figure is expected to fall to 23%. Meanwhile, it is expected that the share of digital wallets in POS transactions will increase from 28% to 53% between 2023 and 2027. Launched by the Bank of Thailand in 2016, PromptPay is Thailand’s most successful digital wallet, and allows direct bank transfers – commercial or not – from one party to another. This has been a popular alternative to the use of credit and debit cards, as it avoids costly transaction or interchange fees. To facilitate its use with tourists, interoperability with non-Thai digital wallets should eventually be pursued.
As incentives for formal job creation improve, policy action should consider stepping up enforcement of the tax, safety and labour laws that are pertinent to the informal sector. Enforcement requires careful application in the presence of a large informal sector. An excessive enforcement drive could, for instance, create unemployment rather than compliance. Meanwhile with only light enforcement, even small cost differences between formal and informal activity may sustain high informality. Large corporations tend to comply more with laws and regulations, while compliance in smaller firms is often influenced by resources and understanding of regulations. Compliance also varies significantly across sectors, regions, and specific laws.
Currently, Thailand lacks a government-wide approach to systematically measure and analyse compliance (OECD, 2025[45]). Individual agencies do not systematically assess the degree of compliance with the regulations that they enforce, or do not fully leverage the information collected to inform the regulatory review process. Thailand should consider developing a comprehensive, whole-of-government policy on regulatory delivery. This policy should incorporate risk-based approaches to regulatory enforcement, better targeting and coordination of inspections, and promoting compliance, in line with the OECD Best Practice Principles. Some agencies in Thailand plan and partially target their inspections on high-risk regulatory areas. For instance, the Department of Labour Protection and Welfare focuses on hygiene regulations or human trafficking. Certain agencies such as the Bank of Thailand or the Office of the Consumer Protection Board partly allocate inspections based on some elements of risk management (OECD, 2025[45]). However, risk-based methods are not widely used in planning and executing inspections and should be more widespread to enhance the effectiveness of regulatory enforcement.
In taxation, the latest Medium Term Fiscal Framework (State Fiscal Policy Committee, 2025[46]) indicates an intention to increase the frequency of audits. This would help combat the underreporting in turnover, headcount or tax liabilities. Increased use of tailored indicators and digital tools to detect underreporting can reduce the time required for individual inspections or detect fraud more easily. For instance, Argentina uses electricity consumption and the surface area of business premises as an eligibility criterion to its presumptive tax regime (Mas-Montserrat, Colin and Brys, 2024[41]). In Thailand, these indicators, as well as water usage, rents paid or VAT refund claims could be assessed against comparable firms to gauge underreporting. Similarly for farmers, discrepancies between declared turnover, registered land area and satellite images of crops can guide auditors. In addition, artificial intelligence may eventually provide potential for identifying fraud or underreporting. For the smaller firms and farmers, penalties for underreporting should remain moderate for first offences, with a focus on pedagogy to shift habits gradually. For sophisticated corporate fraud conversely, tax – and potentially criminal – penalties should be set high to have a real and lasting deterring effect.
There is also scope for better enforcement of labour and work safety laws, as well as environmental regulations, especially in remote areas. Informal workers are significantly more exposed to violations of labour law, as well as faulty or unsafe work environments (Figure 4.17). In the 2024 NSO Labour Force Survey, 21% of informal workers reported a labour law incident, versus 16% for formal workers. Similarly, 14% of informal workers reported a faulty work environment, versus 11% for formal workers. These different rates partly reflect a different composition of the formal and informal workforce – for example, farmers are more exposed to chemicals and are often informal, while complex machinery is more widely use manufacturing where many workers are formally employed. Yet, scaling up labour and safety inspections and enforcement has the potential to improve workers’ rights and make informal employment less profitable for firms, if avoiding labour and safety regulations was their main motive for staying informal, partly or fully. Creating a comprehensive and regularly updated employment database would also help in this context, as it would allow for swifter audits of employment status for the purpose of unemployment benefits and compliance with social security contributions and employment legislation. Finally, enforcement efforts should ensure that firms do not misreport their employees as independent contractors to circumvent minimum wage, social contribution and employment protection legislation. Some countries such as Mexico also classify digital platform workers as employees rather than self-employed. The draft Independent Workers Protection Act, which is currently under consideration and covers both independent and semi-independent workers (such as transports, delivery, housekeeping through digital platforms) will help in this regard.
Note: The data show the share of survey respondents reporting workplace incidents among both formal and informal workers in 2024
Source: NSO (2024).
References
[43] Aguilar, A. et al. (2024), Digital payments, informality and economic growth, BIS Working Papers No 1196, https://www.bis.org/publ/work1196.htm.
[1] Andrews, D., A. Caldera Sánchez and Å. Johansson (2011), “Towards a Better Understanding of the Informal Economy”, OECD Economics Department Working Papers, No. 873, OECD Publishing, Paris, https://doi.org/10.1787/5kgb1mf88x28-en.
[5] Andrews, D., B. Égert and C. de la Maisonneuve (2025), “Adult skills and productivity: New evidence from PIAAC 2023”, OECD Economics Department Working Papers, No. 1834, OECD Publishing, Paris, https://doi.org/10.1787/12ac6e8c-en.
[4] Andrews, D., B. Égert and C. de la Maisonneuve (2024), “From decline to revival: Policies to unlock human capital and productivity”, OECD Economics Department Working Papers, No. 1827, OECD Publishing, Paris, https://doi.org/10.1787/8d0d232c-en.
[28] Arnold, J. et al. (2024), “Towards better social protection for more workers in Latin America: Challenges and policy considerations”, OECD Economics Department Working Papers, No. 1804, OECD Publishing, Paris, https://doi.org/10.1787/76a04c6f-en.
[24] Causa, O. et al. (2024), “Labour markets transitions in the greening economy: Structural drivers and the role of policies”, OECD Economics Department Working Papers, No. 1803, OECD Publishing, Paris, https://doi.org/10.1787/d8007e8f-en.
[20] Chalamwong, Y. (2019), How vocational education can ‘build the nation’, Thailand Development Research Institute, https://tdri.or.th/en/2019/03/how-vocational-education-can-build-the-nation/.
[18] Chalamwong, Y. and W. Suebnusorn (2018), “Vocational Education in Thailand: Its Evolution, Strengths, Limitations, and Blueprint for the Future”, in Education in the Asia-Pacific Region: Issues, Concerns and Prospects, Springer Singapore, Singapore, https://doi.org/10.1007/978-981-10-7857-6_7.
[3] Frosch, M. (2024), “Revealing the unseen: The 21st ICLS statistical standards on the informal economy”, Statistical Journal of the International Association for Official Statistics, Vol. 40/4, pp. 767-785, https://doi.org/10.3233/sji-240058.
[31] ILO (2024), World Social Protection Report 2024-26: Universal social protection for climate action and a just transition.
[36] ILO (2023), Social security for self-employed workers, https://www.ilo.org/media/5456/download.
[33] ILO (2022), Thailand Social Protection Diagnostic Review: Review of the Pension System in Thailand, ILO, Geneva, https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_836733.pdf.
[7] INSEAD (2023), The Global Talent Competitiveness Index 2023: What a Difference Ten Years Make What to Expect for the Next Decade, https://www.insead.edu/global-talent-competitiveness-index.
[38] Krungsri Research (2025), Labor Productivity-wage Gap: Impacts and Risks to Thai Businesses, https://www.krungsri.com/en/research/research-intelligence/Productivity-2025.
[37] Lathapipat, D. and C. Poggi (2016), From Many to One: Minimum Wage Effects in Thailand, PIER Discussion Paper No. 41, http://www.pier.or.th/files/dp/pier_dp_041.pdf.
[34] Leenoi, P. (2021), How to improve working conditions for gig workers in Thailand?, ILO, Geneva, https://www.ilo.org/sites/default/files/wcmsp5/groups/public/@dgreports/@inst/documents/publication/wcms_819507.pdf.
[41] Mas-Montserrat, M., C. Colin and B. Brys (2024), “The design of presumptive tax regimes in selected countries”, OECD Taxation Working Papers, No. 69, OECD Publishing, Paris, https://doi.org/10.1787/58b6103c-en.
[40] Mas-Montserrat, M. et al. (2023), “The design of presumptive tax regimes”, OECD Taxation Working Papers, No. 59, OECD Publishing, Paris, https://doi.org/10.1787/141239bb-en.
[21] MHESI (2023), The Ministry of Higher Education, Science, Research and Innovation, https://www.mhesi.go.th/index.php/news-and-announce-all/news-all/executive-news/8560-2320233.html.
[26] Moroz, H. et al. (2021), Aging and the Labor Market in Thailand : Labor Markets and Social Policy in a Rapidly Transforming and Aging Thailand, World Bank Group, http://documents.worldbank.org/curated/en/428491622713258312.
[12] Nattanicha, P. (2024), Funds for education must be better allocated, says MFP, https://www.nationthailand.com/news/40039205.
[30] OECD (2025), Financing Social Protection through General Tax Revenues, Social Security Contributions and Formalisation in Thailand, OECD Publishing, Paris, https://doi.org/10.1787/b5cc1a43-en.
[15] OECD (2025), OECD Skills Strategy Thailand: Assessment and Recommendations, OECD Skills Studies, OECD Publishing, Paris, https://doi.org/10.1787/153a1fe6-en.
[45] OECD (2025), Regulatory Reform in Thailand: Reinforcing an Effective Regulatory Environment, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://doi.org/10.1787/7892759c-en.
[17] OECD (2024), Educational attainment and labour-force status, https://data-explorer.oecd.org.
[23] OECD (2024), OECD Employment Outlook 2024: The Net-Zero Transition and the Labour Market, https://doi.org/10.1787/ac8b3538-en.
[29] OECD (2024), Pensions at a Glance Asia/Pacific 2024, OECD Publishing, Paris, https://doi.org/10.1787/d4146d12-en.
[11] OECD (2023), OECD Economic Surveys: Thailand 2023, OECD Publishing, Paris, https://doi.org/10.1787/4815cb4b-en.
[8] OECD (2023), PISA 2022 Results (Volume I): The State of Learning and Equity in Education, PISA, OECD Publishing, Paris, https://doi.org/10.1787/53f23881-en.
[9] OECD (2023), PISA 2022 Results (Volume II): Learning During – and From – Disruption, PISA, OECD Publishing, Paris, https://doi.org/10.1787/a97db61c-en.
[32] OECD (2022), OECD Economic Surveys: Colombia 2022, OECD Publishing, Paris, https://doi.org/10.1787/04bf9377-en.
[6] OECD (2021), Vocational Education and Training in Thailand, OECD Reviews of Vocational Education and Training, OECD Publishing, Paris, https://doi.org/10.1787/cc20bf6d-en.
[19] OECD (2018), Seven Questions about Apprenticeships: Answers from International Experience, OECD Reviews of Vocational Education and Training, OECD Publishing, Paris, https://doi.org/10.1787/9789264306486-en.
[35] OECD/ERIA (2025), Promoting Active Ageing in Southeast Asia, OECD Publishing, Paris, https://doi.org/10.1787/22849f38-en.
[2] OECD/ILO (2019), Tackling Vulnerability in the Informal Economy, Development Centre Studies, OECD Publishing, Paris, https://doi.org/10.1787/939b7bcd-en.
[27] Pruksacholavit, P. (2025), Aging population and employment in Thailand: Towards Inclusive Legal Reforms, Japanese Institute of Labour Policy and Training, https://www.jil.go.jp/english/events/seminar/20250326/documents/Thailand.pdf.
[39] Samutpradit, S. (2024), “Employment effects of minimum wages in a dual economy: Evidence from Thailand”, Journal of Development Economics, Vol. 168, p. 103213, https://doi.org/10.1016/j.jdeveco.2023.103213.
[46] State Fiscal Policy Committee (2025), Medium Term Fiscal Framework Budget 2027-2030.
[14] TDRI (2023), Make education keep up with change, Thailand Development Research Institute, https://tdri.or.th/en/2023/09/making-education-keep-up-with-change/ (accessed on 18 April 2025).
[13] Thitiratsakul, T. (2024), Thailand Development Research Institute, https://tdri.or.th/en/2024/03/education-woes-arent-about-funding/.
[42] Thuronyi, V. (2004), “Presumptive Taxation of the Hard-to-Tax”, in Contributions to Economic Analysis, Taxing the Hard-to Tax: Lessons from Theory and Practice, Elsevier, https://doi.org/10.1016/s0573-8555(04)68805-5.
[22] Tractus Global (2023), Thailand Skills Development Program and Incentives for the Eastern Economic Corridor, https://tractus-asia.com/blog/thailand-eec-demand-driven-education-model.
[10] World Bank (2025), World Development Indicators, https://databank.worldbank.org/source/world-development-indicators.
[16] World Bank (2023), Thailand Public Spending and Revenue Assessment: Promoting an Inclusive and Sustainable Future, World Bank Group, Washington, D.C., https://www.worldbank.org/en/country/thailand/publication/th-prsa.
[25] World Economic Forum (2023), Global Gender Gap Report 2023, http://www3.weforum.org/docs/WEF_GGGR_2023.pdf.
[44] Worldpay (2024), The Global Payments Report, https://offers.worldpayglobal.com/rs/850-JOA-856/images/TheGlobalPaymentsReport2024.pdf.