while inflation is at just over 6%. The Minimum Wage Adjustment for 2014, the first since the establishment of the National Wage Council under the revised Labour Code of 2012, was more moderate than adjustments in recent years, much lower than the 26~34% increase proposed by the Vietnam General Confederation of Labour, and even slightly lower than the original proposal in September 2013 by MOLISA of 2,750,000 vnd/month in Region 1.
The below chart and table shows the actual minimum wage levels from 2008 – 2014, and projected minimum wage levels based on an extrapolation of recent trends. There may be a number of explanations for the relative moderation in 2014, some of which could include
the October 2012 appeal by VCCI and several other key export industry associations that the minimum wage be increased by no more than 15% a year in 2013, 2014, and 2015;
inflation is down from 23% in 2008 and 9.2% in 2012, and expected to be in single digits for 2013 (6.2% ~ 6.3%) and 2014;
two – thirds of Vietnamese companies are showing losses in 2013, according to statements at a recent VCCI conference with the Ministry of Finance, Tax and Customs Departments;
the realization by the government that state sector minimum wages, set at 1,150,000 vnd/month, less than one-half the level of private sector minimum wages, would have to be increased so as to have both sectors treated equally in accordance with international trade commitments, while, at the same time, the government could not afford to pay the modest increases of the state sector in 2013 and both reduced the adjustment from 24% to 9.5%, and postponed the adjustment date by two months, from May 1 to July 1, 2013; and finally perhaps,
the realization also that the revised Labour Code (2012) has a number of provisions that substantially increase labor costs, including limit on overtime of 200 hours/year and extension of maternity benefits by 50%, from four months under the previous law to six months under the current law.
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Economic Research: The Effects of Minimum Wage Laws (in the Unites States)
While the aim is to help workers, decades of economic research show that minimum wages usually end up harming workers and the broader economy. Minimum wages particularly stifle job opportunities for low-skill workers. Governments should focus on policies that generate low-inflation economic growth and higher worker productivity, which would generate rising wages and more opportunities for all workers.
Economic Research: The Effects of Minimum Wage Laws (in Indonesia)
A 2010 World Bank study shows that a 10% increase in Indonesia’s minimum wage reduces formal employment by 1%. Formal employment in Indonesia is around 44 million today, so a 30% average rise in the minimum wage could reduce formal employment by more than 1.3 million workers.