BANGKOK: A move by Thailand to raise its minimum wage nationally by 40per cent will kick in tomorrow, despite opposition from small and medium-sized businesses and worries expressed by the central bank that it will add to inflationary pressure.

Initially to be implemented from Jan1, the wage increase was delayed, due to flooding last October that devastated industrial areas in the country.

With the move, employers will now have to pay out as much as 10.2per cent more each month on wages for nearly seven million workers, according to the National Economic and Social Development Board.

Prime Minister Yingluck Shinawatra's Puea Thai government, which took office last August, promised a minimum wage of 300 baht (S$12) a day as part of its campaign pledges. However, that wage will apply only to Bangkok and six surrounding provinces.

Other provinces will get the 40per cent rise, but the minimum will not reach 300 baht. In the northern city of Chiang Mai, for example, it will be 251 baht.

Earlier this month, 42 local and foreign firms appealed to the administrative court to stop the pay rise, but their case was rejected.

'We employ 800 people. Once the 300 baht daily minimum wage policy comes into effect, it will really impact our business. We'll have to spend around one million baht more each month to pay our staff,' said Ms Thidarat Tantiwong, managing director of Sanguan Wongse Industries, Asia's largest tapioca starch plant.

She said the wage rise would be more acceptable if workers' skills improved in line with it.

'The government needs to help people improve the quality of their work to match the salary increase,' she added. 'If my staff work hard, I'm more than happy to meet the minimum wage of 300 baht a day. But it has to be a fair exchange. You can't just give people money with no expectations.'

Government officials have spoken of the need to raise skill levels and attract more advanced industries to Thailand as rival countries seek to compete on labour costs, but critics say the minimum wage policy will not help industry in the short term.

'The increase will help workers cope with the rising cost of living but the running cost for small to medium-sized enterprises will increase significantly,' said economist Pimonwan Mahujchariyawong of Kasikorn Research Centre.

He added that many smaller firms would be faced with the choice of either increasing productivity or retrenching workers.

The Bank of Thailand's latest figures put the jobless rate at just 0.7 per cent. The government provided help to companies to enable them to retain staff when factories were hit by the floods last year. The labour market remains tight and the country continues to attract job-seekers from neighbouring countries, especially Myanmar.

The wage rise has also prompted fears that foreign companies might move production to other Asian countries with lower manpower costs, such as Vietnam.

A 300 baht daily wage is roughly four times higher than the average minimum in Vietnam and three times that in Indonesia, according to Kasikorn Research Centre.

'One concern is that skills on offer in Thailand can now be sourced outside of the kingdom at a fraction of the cost,' said economist Thanomsri Fongarunrung, of Phatra Securities.