Prime Minister Nguyen Tan Dung has given the go-ahead to the increase in Vietnam’s minimum monthly salary by between VND250,000-VND400,000 (US$12-$19) starting next year.
Under a government decree that takes effect January 1, 2015, Vietnam will raise the wage floor to VND2.15 million–VND3.1 million ($101.4-$146.2), depending on the location. In August, the National Wage Council, which advises the government on wage policies, proposed that the minimum wages be raised to VND2.42 million-VND3.1million.
Accordingly, in Region I, including urban Hanoi, Hai Phong, Ho Chi Minh City, the minimum wage will be VND3.1 million, or VND400,000 higher than the current threshold.
VND400,000 is the maximum possible increase, exceeding last year's highest recommended increase of VND350,000, according to labor officials.
In Region Two, including rural Ha Noi, HCMC, Hai Phong plus the capital cities of Hai Duong, Hung Yen, Bac Ninh, Thai Nguyen, Nha Trang, Can Tho and Rach Gia, the minimum wage will be VND2.75 million.
In Region Three, which entails capital cities and the main districts in the provinces of Hai Duong, Vinh Phuc, Phu Tho, Bac Ninh, Nam Dinh, Phu Yen, Dong Nai and Tien Giang, Ben Tre, the monthly salary will be VND2.4 million.
In Region Four, the least developed areas in Vietnam, the basis salary will be VND2.15 million.
Starting early this year, the minimum wage reached between VND1.9-2.7 million (US$90-128) a month. The variance was determined by the cost of living in a given worker's location.
Vietnam's per capita GDP climbed to US$1,890 last year, up 8 percent from 2012, according to the World Bank.
According to a recent survey by the Vietnam Worker and Trade Unions Institute, actual minimum wages range between VND2.5-VND4 million a month, depending on location.
However, even that salary only covers 69-77 percent of a Vietnamese person's basic living costs, according to the survey, which polled 1,500 workers in 12 cities and provinces during the first half of this year.
Up to 13 percent of workers said their salaries do not cover their basic living costs, 25 percent said they had to spend carefully and 50 percent said their salary only affords the most basic standard of living.
Vietnam's economy, which recorded growth of 5.42 percent last year, is expected to expand 5.8 percent in 2014, in line with a government target. The Southeast Asian country is expected to keep annual inflation at a rate below 5 percent, or about 2 percentage points below a government target.
Both foreign and local companies often lament that minimum wage increases will hit their operations. They warn any further wage hikes will cause grave consequences on Vietnam’s competitiveness in the near term, adding it needs to be considered “very carefully”.
Analysts acknowledge that Vietnam’s abundance of cheap labor has played an increasingly pivotal role in wooing foreign firms looking to set up overseas manufacturing operations in a country with a population of 90 million. This edge appears to be working well in the context of rising labor costs in China and political mayhem in Thailand.
But the analysts also say the bottom line is that competing in terms of low wages is a risky business and should only be considered an edge in the short-term for a developing country like Vietnam. The biggest challenge for the country is to ensure that the quality of its labor force improves steadily, they say.
“In the short-run, foreign direct investment may help create new jobs and attract redundant workers from rural areas. In the longer-run, however, low wages in industry may contribute to increased relative poverty,” said Pietro Masina, an associate professor of economics at the University of Naples "L'Orientale" in Italy.