March 2008 - The services sector accounts for nearly half of aggregate production and 40 percent of employment in Thailand. It is also the dominant source of new job creation. Between 2000 and 2005, employment expanded by 2.6 million in the service-producing industries compared to 1.6 million in the industrial sector.

Yet, services are frequently disparaged as a source of low-wage, low productivity jobs, and they are characterized as industries with limited opportunities for growth and innovation. Government policies in many emerging economies have consistently been directed at promoting the growth of industry, and often at the expense of services.

Thailand’s national statistics paint a sobering picture of the performance of the services sector in recent years. Labor productivity fell sharply during the 1997-98 financial crisis and has remained stagnant ever since. The generally poor productivity performance of the services industry in recent years raises concerns about the potential of this sector to be an engine for gains in the real wages and living standards of Thai workers in the future. However, it is unclear whether these estimates reflect the accurate growth in services productivity, or are a result of the low quality of available data on service-producing industries in Thailand.

This report reviews the methodology for computing productivity and applies that methodology to various levels of the Thai economy. It also measures the productivity performance in greater detail for four services industries that can be then be used for benchmarking purposes against other countries. Finally, it examines the procedures for measuring output and productivity in the services sector and suggests areas that are in need of improvement.