A proposed wage hike should be carefully considered to ensure it doesn't hamper Vietnam's competitiveness, FDI flows or job creation. Photo: Diep Duc Minh
A proposed minimum wage hike has drawn criticism from those who fear it will accelerate inflation and raise the cost of doing business in Vietnam, where entrepreneurs say times remain tough.
The National Wage Council has recommended the government increase Vietnam's minimum monthly salary by 15.1 percent to VND2.42-VND3.1 million ($114-146) starting 2015.
Each worker's precise wage will be determined (within that range) by the cost of living in his or her location.
Nguyen Thi Hanh, an employee at a machinery production firm in Hanoi's Quang Minh Industrial Park said the new hike would only bring her an extra VND300,000-400,000 per month.
“That's not nearly enough for workers like me to be able to afford a life in this city,” she said while preparing dinner in the tiny rented room that serves as her kitchen, living room and bedroom.
“What's worse, it could trigger a rise in the price of consumer goods making life even more difficult.”
For decades, Vietnam has failed to establish a minimum wage that comes close to covering the basic cost of living here. Even with the proposed rise, the new minimum wage will only cover 75 percent of the cost of a worker's basic needs, said Dang Quang Dieu, from the Vietnam General Confederation of Labor.
"In order to survive, many workers will have to do extra jobs to increase their income," he said.
Many other laborers say they aren't interested in the minimum wage increase, since most of their income comes from allowances and bonuses which are often calculated based on their employers' business.
Hanh’s roommate Le Thi Ha, a worker at a garment company, said the hike would not significantly her raise her monthly income as nearly half of her money (a little over VND6 million a month) comes from special bonuses, overtime, incentives, etc.
The salaries that many firms pay their workers are higher than the minimum wage set by the government. So they won't increase wages following the government's minimum wage hike.
One economist said some firms are considering increasing baseline salaries and cutting ancillary payments. "If that's the case, worker incomes won't change and their living conditions won't improve despite the wage hike."
While the wage hike has failed to spark any enthusiasm among workers, it has raised big concerns among local producers, who are already struggling because of low purchasing demand in the domestic market and fierce competition from abroad.
Cao Tien Vi, general director of the Saigon Paper Corporation, said the wage hike would coincide with a lull in business. Every firm wants to raise salaries to ensure they hire and keep the most qualified laborers, he said, noting that they can only expect to do so when business is good.
The government should focus on addressing macroeconomic problems to ensure that businesses can absorb the costs of the hike.
Truong Anh Tu, director of Hanh’s company, said the wage hike will raise his company's personnel costs by VND1 billion each year and could render his products non-competitive. At that point, he'd have to start cutting staff.
Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) Vu Tien Loc said that if the minimum wage increases by some 15 percent, salary and insurance costs will rise by more than 20 percent, placing further pressure on many enterprises already struggling through hard times.
Social insurance premiums are calculated as 26 percent of a given laborer’s monthly salary, of which the employee contributes 8 percent and the employer the rest.
The government should consider each enterprise's ability to survive such hikes before forging ahead with the plan given that 33,000 firms shut down in the first half of 2014
The trend is expected to continue in the rest of this year, Loc said.
Bui Sy Loi, vice chairman of the National Assembly’s Committee on Social Affairs, said the salary hike will fail to improve laborers’ living standards if inflation isn't controlled and economic growth doesn't happen.
The government hopes to report economic growth of 5.8 percent this year; the World Bank has already undershot that estimate by 0.4 percent.
Meanwhile, the General Statistics Office expects Vietnam's inflation to be 5 percent this year.
Some economists say Vietnam’s decision to increase minimum wage without raising productivity will come back to bite it in the end.
Vietnam is one of a few countries where laborers enjoy salaries higher the productivity they generate, Cao Sy Kiem, chairman of the Vietnam Association of Small and Medium-Sized Enterprises was quoted as saying in a report released by the International Labor Organization (ILO).
Vietnam's main rivals in FDI attraction include Malaysia, Thailand and Indonesia -- all countries where wages dwarf productivity, he said.
A survey conducted last year by the organization found that productivity in Vietnam was equivalent to one-fifth of Malaysia's, two-fifths of Thailand's, and one-fifteenth of Singapore's.
To make matters worse, the ILO identified a recent slowdown in Vietnam’s productivity growth. From 2002-2007, productivity increased by 5.2 percent on average every year -- among the fastest growth rates in the region. Since 2008, however, that rate has fallen to 3.3 percent.
Vietnamese labor productivity was described as 61.4 percent of the region’s average and down near the bottom of the list with Myanmar and Cambodia.
Wage hikes should be carefully considered to ensure they don't hamper Vietnam's job creation efforts, FDI flows or competitiveness, Kiem said.
Hiking wages for a poorly qualified workforce in a country with an underdeveloped network of supporting industries and infrastructure could discourage foreign investment in Vietnam or even inspire those who are already here to leave the country, Kiem said.
An official from the labor ministry said wages always reflect productivity in developed countries. However, productivity is only one of factor under consideration now given that Vietnam's economy continues to develop very slowly.
The minimum wage will be calculated based on productivity when the wage meets the cost of laborers’ basic needs, he said.