Vietnam Debates Case for Higher Minimum Wage

July 3, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HCMC – Discussions surrounding a higher minimum wage in Vietnam reflect an increasingly popular trend towards higher minimum wages across Asia. With many factories moving operations away from China due to rising wages and a growing middle class unwilling to work in the factories. Vietnam, Bangladesh, India and Pakistan are set to inherit low-wage manufacturing operations over the next decade.

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Vietnam’s minimum wage is currently between VND1.9 and 2.7 million (US$100-128) a month, depending on location. According to statistics from the Vietnam Chamber of Commerce and Industry (VCCI), regional minimum wages across Vietnam grew 9.9 percent on average in 2010, 30.1 percent in 2012 and 15.2 percent in 2013. Minimum wage growth in Vietnam has for the most part kept pace with Consumer Price Index (CPI) growth in 2010-2011, but has been higher than CPI growth since 2012.

The Minimum Wage Debate

Supporters of a higher minimum wage rate often cite a number of advantages that come with higher income including poverty alleviation and an improved quality of life for low-wage workers. Presently, however, Vietnam’s widening income gap is threatening to push social and income inequality to record levels unless minimum wage increases can counter these tendencies and reinforce social stability.

While raising Vietnam’s minimum wage will benefit workers, it will also inevitably drive away business. According to Vi Thị Hồng Minh, Vice Director of the Vietnam Chamber of Commerce and Industry (VCCI), business revenue has remained unchanged for the past five years due to the economic crisis despite minimum wage increases on a yearly basis. As a result, a substantial minimum wage increase would potentially cost thousands of jobs by forcing producers to cut costs by trimming expenses and eliminating jobs.

According to other research, raising the minimum wage would not necessarily be as beneficial to Vietnamese workers as some believe. Some experts even suggest that raising Vietnam’s minimum wage would deal a devastating blow to the very people the policy is aiming to help due to the price increase that would follow a minimum wage hike. As a consequence, a wage hike would push low-income families further into the vicious cycle of poverty rather than raise them out of financial depression.

Exceeding CPI Growth

Full-time laborers comprise a significant portion of minimum wage earners in Vietnam, and work primarily in the garment, footwear and fishery industries. Workers in foreign invested enterprises (FIEs) operating in industrial parks, economic zones and export processing zones account for another significant portion of this population.

Minimum wage is designed to cover the basic needs of employees and workers; the most basic of these being rent, utilities, food, healthcare, gasoline and clothing. These needs inevitably grow when a worker must support a dependent such as a child or elderly parent.

Recent research by the Vietnam General Confederation of Labor (VGCL) indicates that workers require an average of VND900,000 (US$43) per month to ensure sufficient nutrition (2,300 calories a day) and VND1,200,000 for other living expenses. Having a child or other dependent adds an additional VND1,500,000 to these monthly expenses. As a result, spending on these basic needs has outgrown the monthly minimum wage of VND1,900,000 – 2,700,000.

Mai Đức Chính, Vice President of the VGCL, confirmed that the current wage rate covers only 70-74 percent of minimum living costs for the average worker. In the manufacturing sector, the minimum wage only supports 62-69 percent of workers’ needs and this number is even lower in administrative sectors.

Foreign investors have urged caution and deliberation from the Vietnamese government before any further wage increases are made, but it seems clear that future pay increases, however small, will be likely. Vietnam will still remain competitive on wages throughout the region for many years to come, but this is certainly a subject that foreign investors would be wise to keep their eye on.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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