Thailand’s Economic Crossroads: Industrial Slump Drives Workers to Low-Paying Service Jobs

Economic Slowdown Forces Thai Labor Market Transformation

Thailand faces a critical economic juncture as a prolonged industrial slowdown pushes workers from higher-paying manufacturing roles into lower-compensated service sector positions. The Bank of Thailand has raised alarms over this weakening income outlook, noting that the structural shift is dampening the country’s overall economic potential. From the post-coronavirus pandemic period in 2022 through the third quarter of 2025, the nation’s average GDP growth reached only 2.4%. This sluggish expansion relies heavily on the services sector, which now accounts for 60 to 61% of the gross domestic product.

Pranee Sutthasri, senior director of the central bank’s macroeconomic department, highlighted the severity of the labor market shifts during a recent Monetary Policy Forum. She explained that the contribution from the manufacturing sector has steadily deteriorated as labor moves away from industry and agriculture toward services.

“Most labour migration has gone into traditional service sectors, where average wages remain low at around 114 baht per hour, only slightly above the Covid-period level of 110 baht.”

This wage level stands in stark contrast to modern service sectors, where average pay has risen sharply to 703 baht per hour from 558 baht during the pandemic. Meanwhile, manufacturing wages average 183 baht per hour, showing only marginal growth from 173 baht. The data reveals a concerning trend where the expanding sectors of the economy are not providing the income boosts necessary to sustain robust household consumption.

A Decade of Stagnation and the Middle-Income Trap

The current challenges are not sudden but rather the result of long-standing structural issues that have plagued the Thai economy for over a decade. Historical analysis shows that Thailand once enjoyed double-digit economic growth as labor moved from low-productivity agriculture to higher-productivity manufacturing. However, that dynamic has stalled. Rising labor costs have caused the expansion of the manufacturing sector to slow remarkably. Many labor-intensive industries, such as textiles and electrical appliances, have shut down or relocated to neighboring countries like Laos and Cambodia where wages are lower and semi-skilled workers are abundant.

This phenomenon, often described as the “hollowing out” of the industrial sector, typically occurs in developed nations. Thailand faces this difficulty while still being a middle-income country, risking a scenario where it becomes old before it becomes rich. With extremely low fertility rates, the country is expected to become an aging society rapidly. The yawning productivity gap illustrates the unbalanced nature of the Thai economy. Policies focused narrowly on export-oriented manufacturing have left agriculture and services sectors behind. Consequently, the majority of the workforce remains stuck in less developed parts of the economy, limiting per capita income growth.

The education system serves as a major bottleneck in this equation. Despite dedicating roughly 20% of the government budget to education, results remain poor. International assessments rank Thai students low in mathematics, reading, and science compared to global peers. This skills mismatch hinders the transition to a knowledge-based or digital economy, making it difficult for the workforce to move into high-value industries that offer better wages.

Falling Behind Regional Peers

While Thailand struggles with structural deceleration, other Southeast Asian nations are forging ahead with more dynamic growth trajectories. Recent economic reviews for the third quarter of 2025 highlight the divergence. Thailand’s economy grew by just 1.2% year on year, marking the slowest pace in four years. In contrast, Vietnam achieved a remarkable 8.22% growth, driven by strong industrial output and services. Malaysia also posted solid growth of 5.2%, supported by robust domestic demand and a rebound in exports.

The disparity in technology-related production is particularly telling. Thailand recorded growth of only 17.2% in this area, lagging well behind regional peers. Taiwan led the region with 73.8% growth, followed by the Philippines at 53.5%, Malaysia at 43.9%, South Korea at 38.3%, and Vietnam at 34.8%. This gap underscores Thailand’s weakening competitiveness in the manufacturing sector. Although exports surged by 12.3% in 2025, the increase was heavily concentrated in a narrow range of products, mainly electronics. This reflects a lack of diversification. In contrast, previous years saw more balanced expansion across a wider range of product categories.

Furthermore, imports have continued to surge, particularly from China. This trend reflects low local content usage, meaning Thai manufacturing relies heavily on foreign components for assembly. This reliance does not generate broad-based benefits for the domestic economy. The trade structure suggests that while Thailand serves as a hub for assembly, much of the value creation happens elsewhere, limiting the spillover effects on wages and domestic business growth.

Tourism Decline Undermines Service Sector Growth

As the industrial sector falters, the service sector bears the burden of employment. However, the primary engine of the service economy, tourism, is showing signs of fatigue. The number of foreign visitors to Thailand fell to nearly 33 million last year from 36 million in 2024, a decline of 7%. This drop is alarming because it occurred during a period when neighboring countries continued their post-pandemic recovery.

Japan recorded 39 million visitors in 2025, up from 37 million a year earlier. South Korea saw arrivals rise to 19 million from 16 million, and Vietnam welcomed 21 million visitors, up from 18 million. Thailand stands out as the only country in the region where tourist numbers declined during the recovery phase.

“Thailand is the only country in the region where tourist numbers declined during the post-pandemic recovery period,” the BoT official said.

This deterioration in competitiveness is hitting the hospitality industry hard. Reports indicate the Thai hotel industry faces its first contraction in five years, with revenue predicted to drop by 4.5% in 2025. Factors contributing to this include fewer tourists, lower occupancy rates, and decreased income from auxiliary services like meetings and seminars. Rising operational costs, driven by higher labor wages, are squeezing margins, yet intense competition prevents hotel operators from passing these costs to customers. This creates a difficult environment for the very sector expected to absorb the workforce leaving factories.

Consumer Weakness and Stark Warnings

The cumulative effect of industrial decline, low wages, and a struggling tourism sector is weighing heavily on Thai households. Sluggish income growth is expected to dampen consumption going forward. Private consumption is forecast to expand by just 1.9% in 2026, a sharp drop from 4.4% in 2024 and 2.4% in 2025. Households are becoming increasingly cautious in their spending, a trend that could lead to a vicious cycle of low demand and stagnant growth.

Senior policymakers have begun to issue stark warnings about the trajectory. Dr. Veerathai Santiprabhob, chairman of the Thailand Development Research Institute and former Bank of Thailand governor, quoted the deputy prime minister and finance minister, Dr. Ekniti Nitithanprapas, regarding the severity of the situation. The finance minister recently stated that Thailand’s economy is facing a “stuck situation or may be falling off a cliff.”

“We rarely hear high-level executives who set economic policy acknowledge the truth so directly,” Dr. Veerathai said. “This demonstrates the severity of problems that have been neglected for so long, resulting in Thailand’s economy becoming stagnant, stuck, or about to fall off a cliff.”

Warnings extend beyond simple stagnation. Indicators across nearly every sector show Thailand’s development lagging behind comparable nations. Factors include stagnating national competitiveness, poor education quality, low agricultural productivity, government inefficiency, high household debt, and market dominance by large capital groups. The longer the country remains stuck, the harder it will be to climb back out, as resources continue to erode relative to the investment needed for recovery.

Structural Bottlenecks Hinder Progress

Several deep-seated constraints prevent Thailand from breaking out of this cycle. Political instability plays a significant role. Over the past 20 years, Thai prime ministers have averaged just over one year in office. This short tenure prevents policy continuity and makes it nearly impossible to solve structural problems that require long-term commitment. Frequent changes in leadership lead to a focus on short-term “quick win” policies rather than comprehensive reform.

Regulatory environments also pose challenges. The country ranks high in service sector trade restrictions among major economies. These rules affect competition in sectors like telecommunications and often enable nominee arrangements lacking accountability. Additionally, the Foreign Business Act imposes strict limits on foreign ownership in many sectors, which can deter the inflow of capital and expertise needed to modernize services. While the Eastern Economic Corridor aims to attract high-tech industries, broad-based reform is necessary to uplift the wider economy.

Corruption remains a persistent issue. Transparency International ranked Thailand 108 out of 180 countries in its Corruption Perceptions Index. Bribery and the exercise of discretionary power by officials create barriers to efficient business operations. These issues, combined with an aging population and labor shortages, create a complex web of challenges that simple monetary policy adjustments cannot fix.

Urgent Calls for a New Development Model

Despite the grim outlook, economists and policymakers argue that a different path is possible if radical changes are implemented. Experts suggest that Thailand must move beyond the old development model, which relied heavily on tax incentives to attract foreign capital without ensuring benefits reached the local population. A new industrial policy must focus on creating added value for the economy and ensuring Thai citizens benefit more from domestic economic activities.

Key recommendations include redesigning support measures to create quality jobs rather than simply chasing quantitative investment figures. This involves shifting focus toward upskilling and reskilling the workforce to meet the demands of a digital economy. Trade and investment policies need liberalization, such as allowing foreigners to hold more than 50% shares in service sectors and permitting foreign professionals to work in shortage areas to facilitate knowledge transfer.

Specific sectors offer hope. The automotive industry is transitioning toward electric vehicles, supported by government incentives. Digital services and logistics are poised for growth. Renewable energy presents another opportunity, with the government setting targets for increased clean energy usage. However, realizing these opportunities requires a stable political environment and a willingness to reduce the discretionary power of state agencies that often hampers progress.

Dr. Veerathai emphasized that escaping stagnation requires designing a completely new development model. This includes new industrial policies, innovation strategies, skills development, and a government role that propels rather than restrains economic progress. Without such comprehensive reform, the risk of Thailand falling deeper into economic stagnation remains high.

The Bottom Line

• The Bank of Thailand reports a shift of workers from manufacturing to lower-paying traditional service jobs, with average wages in traditional services at 114 baht per hour.
• Thailand’s average GDP growth lagged at 2.4% from 2022 to Q3 2025, while the manufacturing sector’s contribution deteriorated.
• Tourism numbers fell by 7% to 33 million in 2025, making Thailand the only country in the region to see a decline in post-pandemic visitor arrivals.
• Private consumption is forecast to slow to 1.9% in 2026, down from 4.4% in 2024, due to weakening income growth.
• Technology-related production grew by only 17.2% in Thailand, significantly trailing regional peers like Taiwan and Vietnam.
• Senior officials warn the economy is “stuck” or “falling off a cliff” due to long-standing structural issues and political instability.