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Experts discuss minimum wage increase

Update: August, 18/2014 - 09:08
The region-based minimum wage in Viet Nam would increase by 15.1 per cent starting next year under a proposal that the National Wage Council recently submitted to the Government.

The minimum wage varies between four regions. Under the proposal, it would range from VND2.2 million (US$103) to VND3.1 million ($145) per month.

Some feel the move is necessary to help workers cover the increasing cost of living. However, others express concern that a minimum wage increase would be costly to businesses.

Viet Nam News reporters Minh Thi and Thu Huong talked to various stakeholders about this issue.

The Government is planning to raise the minimum wage so that it will soon cover the minimum living standard. How can we determine the minimum living standard?

Pham Minh Huan

Pham Minh Huan, Deputy Minister of Labour, Invalids and Social Affairs, Chairman of the National Wage Council

To set the minimum wage, the key is to first determine the minimum living standard. This should be considered in the context of the country's socio-economic development, considering demand for food, clothing, travel, education and child care.

State agencies are working together to determine the minimum living standard. The Viet Nam General Confederation of Labour is conducting surveys into the lives of workers at enterprises. The National Wage Council's technical team is calculating demand for 45 basic goods and the General Statistics Office is studying the living standard of the population.

Based on these studies and surveys, we plan to reach an agreement about the minimum living standard by 2015. Of course, there will be certainly some gaps between studies, but we will work to reach an agreement by then to make sure to produce the most realistic result based on scientific calculation.

Is it expected that by 2017, the minimum wage will be able to cover the minimum living standard?

Huan: Previously, we hoped to achieve that by 2016, but in the current context, we had to prolong the adjustment. Now the plan is to achieve that target by 2017.

But these are only our hopes, given that GDP growth is around 6-7 per cent and CPI is under 5 per cent. We need to consider reality and balance the benefits of employers and employees. If the country's economic development is robust, the target might be achieved sooner.

If we raise it to a level that is too high, it will lead to negative results. Enterprises will either reduce production and slash staff or just violate the law.

Dang Quang Dieu, Head of Viet Nam General Confederation of Labour's Policy and Law Department

Dang Quang Dieu

I doubt that we will be able to meet this target by 2017. This year, the minimum wage only meets around 70 per cent of the minimum living standard. With the 15-per-cent adjustment next year (if the National Wage Council's proposal is approved by the Prime Minister), we would be able to raise it only to around 75 per cent, considering the compensation for devaluation.

Dang Nhu Loi, former chairman of the National Assembly Committee on Social Affairs, an independent expert in wage policy

I think we need to differentiate between two concepts: minimum wage and the floor minimum wage. The Government can determine the floor minimum wage, which means businesses cannot pay lower than that benchmark. I think what we've been talking about is the floor minimum wage.

The actual minimum wage should be determined by the business based on its production and operation. In addition, the role of trade unions must be boosted. Like other countries, trade unions can negotiate with employers to determine the level of minimum wage for that business, which can obviously be higher than the floor minimum wage set by the Government. We need to let the market decide that level.

If the National Wage Committee's proposal is approved, how do you foresee it impacting enterprises and workers?

Huan: Technically, only those who receive the lowest level of pay in enterprises, meaning those with wages lower than or equivalent to the minimum wage regulated by the Government, will benefit from the policy. The Government cannot request that enterprises raise the wage if they already offer a higher wage than the minimum one.

But previous experiences have indicated that when you raise salaries for those with the lowest pay, you will end up having to raise salaries for those at the highest level as well. In addition, many enterprises use the minimum wage as the basis to pay social insurance for workers, so if the minimum wage is increased, insurance costs will also be raised.

Dieu: Those who receive pay lower than or equivalent to the minimum wage will benefit the most. Those with higher wages might enjoy a smaller pay raise of around 5-10 per cent.

It is up to enterprises to decide how much they will increase the wage of workers. The Viet Nam General Confederation of Labour, as the representative of workers, is calling for a pay raise of 15 per cent for all workers so that all will enjoy better living standards.

Our position in minimum wage adjustment is not only to raise the wage of workers with the lowest wages, but also to encourage enterprises to raise the wage offered to all workers.

Loi: When considering any kind of proposal to raise the floor minimum wage, we must carefully balance the interests of various stakeholders. Can businesses handle the increase? Do they need to reduce production? It should be noted that many enterprises already fail to pay the current floor minimum wage ($90-$129 per month).

Phan Thi Thanh Xuan, general secretary of the Viet Nam Leather, Footwear, and Handbag Association

Phan Thi Thanh Xuan

While most employers already offer higher wages than the minimum wage regulated by the Government, this level is often used to calculate health and social insurance and allowances.

Therefore, for companies, increases in minimum wage lead to increases in many other expenses. A 15 per cent increase in minimum wage means that many companies have to prepare for HR expenses to go up by 20-25 per cent.

The industries that employ the largest number of workers, such as textiles and footwear, will certainly be the most affected –particularly medium-sized and small enterprises.

The increase in minimum wage will also influence people's expectations. Even if employees' salaries are a lot higher than the Government minimum wage, they still expect to enjoy pay raise with the approval of such a proposal.

As employers need to pay more to workers, they will have to cut down on investments, for example to expand business.

It is important that enterprises take better care of their workers to ensure stable production. However, the pay raise should be within the capacity of enterprises, or else they will suffer – or even have to close down.

But enterprises seem to have benefited a lot from Viet Nam's "advantage" of low labour costs. Isn't the adjustment meant to achieve more fairness?

Huan: There are two sides to the problem. Low labour costs have brought many foreign investors to Viet Nam. But when wages go up, we could lose this advantage. Investors might leave and try to find other markets with even lower labour costs.

It is undeniable that these foreign investors have created more jobs in Viet Nam. While the pay remains low, it is still better than unemployment, which is the result if these investors go.

However, if we can raise the skills of workers and quality of Vietnamese brands, we don't need to worry about this problem. What we are doing now is simple processing. If we can improve the skills of workers and the capacity of businesses to carry out production, design and branding, we will gain higher profits and replace the low cost of labour with other advantages.

Concern has been raised about the possibility that the increase in minimum wage could lead to inflation. What do you think?

Huan: I don't think it will lead to much inflation because technically the minimum wage increase only applies to those at the lowest level of pay. However, there is some risk that some people will take advantage of the policy to raise the prices of goods and services, such as the rent or the prices of food in industrial zones.

To prevent this, it is very important that the local authorities intervene. When the minimum wage was raised in HCM City, for example, the local authorities would warn landlords not to raise the rent of workers.

Labour experts have expressed concern that Viet Nam's productivity has not kept pace with the much faster increase in minimum wage. What do you think?

Dieu: Workers should not be the only ones to blame for low productivity, as productivity depends on many different factors. It depends on the level of investment a company makes in the equipment and machines used in production. It also depends on the working environment and conditions that a company offers to its workers.

If two workers work in the same profession, but one has better working conditions, he or she will be more productive. Besides, the current wage offered to workers remains low, so their health might not be good enough to achieve high productivity.

I think that before asking for higher productivity, enterprises have to make sure to pay wages equivalent or above the minimum living standard.

Only in this way will workers receive the care they deserve and be motivated to achieve higher productivity.

Xuan: I think the key solution is to improve production management quality to save costs and reduce the time spent on faulty products. This is the only way to boost productivity. Many footwear enterprises have now begun to apply advanced production models to raise productivity.

Adam Sitkoff, executive director of the American Chamber of Commerce, Ha Noi

Each year, wages rise in Viet Nam but productivity and efficiency don't follow the same upward path. This is the real problem because Viet Nam will not win the globalisation game on cheap labor alone.

We need to see the Government take further actions to improve and upgrade the skills of its workforce. Otherwise, Viet Nam will get caught in a low productivity trap that will hamper its competitiveness in a very crowded global market.

There should be a minimum of four months between the announcement of the wage adjustment and the effective date, and the same date should be chosen for all companies - foreign, domestic, private and state-owned. — VNS


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