Low-cost labor no longer a key advantage

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Low-cost labor will not continue to be an advantage for Vietnam, as it will not be able to sustain the country's development going forward, an officer of the International Organization told Thanh Nien Weekly.

The country should focus on improving the skills and capacity of the labor force, so that it can focus on new markets and industries, Phu Huynh, Labor Market Information Officer at the Regional Office for Asia and the Pacific, said.

Thanh Nien Weekly: What is your assessment of the labor markets of the Southeast Asian region in general, and Vietnam in particular?

Phu Huynh: I think that the labor markets in the Southeast Asian region as well as in Vietnam are dealing with some specific issues. A lot of them have to do with the developing context of the region. Many countries in Southeast Asia have very low unemployment rates, but that does not cover the fact that people are working in poor conditions and earning very low wages. A lot of people are working in an informal economy so they don't have proper social protection, legal protection, and official government support for their legal issues in the workplace. They don't have a voice and are not able to participate in the workplace.

One of the key issues for Vietnam is the need to upgrade the skills of the labor force to keep up with the economy for the transition from agriculture to more high-level industry, as well as new services that come up.

What are the biggest problems facing the Vietnamese market?

The labor market is behind the economic market. There are issues like industrial relations with strikes. There needs to be a better dialogue and more opportunities to discuss issues with wages and conditions so you don't have wildcat strikes.

Skills development is a major issue. Primary education is very good in Vietnam. But, I think we need to focus on higher-level skills, secondary education, tertiary education, vocational training, and technical training. There needs to be more cooperation between the education side, the labor side and the employer side, so you can understand how to adapt the curriculum and the criteria for students so they leave schools with better skills.

Another issue is the importance of employment. Vietnam's labor force will continue to grow. Within employment creation, there are specific groups you need to consider migrant populations, young people, ethnic minorities, even women. You need to focus on them and give them opportunities to participate in the labor market as well.

Will low-cost labor continue to be an advantage for Vietnam?

It is an advantage for Vietnam, but it is not going to be what will sustain the country's development going forward. The reason is that if you use low labor cost to achieve growth, you're always going to be undercut by somebody else. There will be somebody else willing to do it for even cheaper. And furthermore, by focusing on low-cost labor, you are not able to concentrate on high productivity, moving up the development chain within manufacturing, and higher value added services. Once you start to do that, you require further skills development and better training of the workforce.

Vietnam has been successful with this, but I think going forward, officials and policy makers are already aware that they can't continue on this path. They need to start to think about how they can be more competitive and look at other countries in the region. For Vietnam right now, it's not about being low-cost, but how they can be competitive as far as the quality of services, so they can compete more with other countries in the region, such as Thailand and Malaysia. They need to start to move in a way that is not looking downward.

Higher salaries might put foreign investors off. What do you think about this?

There has to be a balance. I know that's a concern for some people, but if you are able to show that people are increasing wages, it's a higher labor cost, but the workforce is of a better quality. And better quality confirms better skills and training which is worth the trade-off.

Vietnam is an export-driven economy that depends on the demand of importers. In this context, how can Vietnam create more jobs?

There is big debate in the region about shifting the balance of the growth. Vietnam is an interesting case because the population itself is very large. Other countries such as China and Indonesia have big domestic markets, so if the export markets are weakening, they can focus on the domestic market.

Vietnam has to find more of a balance, because although there is a big domestic market here, the country is reliant on exports. So, it depends on building an economy that is based on jobs, on income where the domestic market could create the demand needed to strengthen the area of growth. This is what Vietnam should keep in mind going forward because it has potential for creating a very big domestic market as well.

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