Vietnam’s Minimum Wage Adjustment for 2017, the fourth since the establishment of the National Wage Council under the revised Labour Code of 2012, is an average increase of 7.3%, down from 12.5% in 2016. It was announced in Decree 153/2016/NĐ-CP, 14/11/2016, and will go into effect on Jan 1, 2017. One difficulty: enterprises’ expenditures will increase sharply, because they not only must adjust monthly salary for their workers but also must increase their contribution to social insurance. At the present, total social insurance takes up 32% of monthly salary, of which employers must pay 22%.
The Minimum Wage Adjustment for 2017 is substantially lower than increases in the past four years.. The proposed MW in Region 1 for 2017 would be 3.9 million vnd/month. If present trends continue, the minimum wage in Region 1 would be about 4.7 million vnd/month in 2020, below last year’s projection of 5.0 million vnd/month.
Deputy Prime Minister Vuong Dinh Hue agreed with the National Salary Council’s proposal to adjust the monthly minimum wage for 2017, as part of a conference on salary policy reform, social insurance and policies for people with special contribution to the nation held in Ha Noi.
The minimum wage varies across the four regions, based on cost of living and location.
Region 1 covers urban Ha Noi and HCM City, Region 2 covers rural Ha Noi and HCM City along with urban Can Tho, Da Nang and Hai Phong cities, Region 3 applies to provincial cities and the districts of Bac Ninh, Bac Giang, Hai Duong and Vinh Phuc provinces, and Region 4 takes care of the remaining localities.
Pham Minh Huan, Deputy Minister of Labour, Invalids and Social Affairs, said that the 2017 minimum wage adjustment received the strongest consensus ever reached between the Viet Nam General Confederation of Labour (VGLC), which represents employees, and the Viet Nam Chamber of Commerce and Industry (VCCI), which represents employers.
Huan said that the rate was adjusted to offset currency depreciation and based on current socio-economic conditions, including basic living costs for workers and their families.
The minimum wage increase would not only meet labourers’ basic living costs, but also ensure enterprise development, he said.
Huan also mentioned a difficulty: enterprises’ expenditures will increase sharply, because they not only must adjust monthly salary for their workers but also must increase their contribution to social insurance. At the present, total social insurance takes up 32% of monthly salary, of which employers must pay 22%.
The social insurance payments increases could result in the loss of 371,000 jobs. These would be mostly workers in foreign invested enterprises, joint ventures, joint stock companies and limited companies. About 110,000 jobs would be cut in textile & garment sector, 105,000 in manufacturing and 59,000 in service sectors. According to Nguyen Viet Cuong, deputy head of MDRI (Mekong Development Research Institute), the high required social insurance contribution would lead to employment reduction, product price increase and lower economic growth rate.
Vietnam’s National Wage Concil (photo below) reached a consensus on August 2, 2016, a month earlier than in 2016, when two meetings in August failed to reach agreement.
According to a report by the ILO and ADB, since 2008, Vietnam’s average annual productivity growth has been only 3.3%, much lower than the 5.2% achieved from 2002-2007.
Vietnamese productivity was only 61.4% of the average productivity of ASEAN countries, and was equal to just 12%, 22%, and 40% of the productivities of Singapore, Malaysia, and Thailand, respectively. Vietnam’s productivity was only higher than those of Cambodia and Myanmar.
Less than 20% of Vietnam’s workforce is trained properly, and many Vietnamese workers do not meet the requirements of the labor market, ILO said.
Read more …
Vietnam’s 2017 Minimum Wage Decree, Số: 153/2016/NĐ-CP, 14/11/2016
Vietnam’s 2017 Minimum Wage Proposal
Social insurance contributions could cause job loss for 371,000 workers, VietnamNet, Oct 13, 2016.
World Bank: Are Minimum Wages Too High?, July 2015
2015 Minimum Wage Adjustment – Decree #103/2014/NĐ-CP, Nov 11, 2014 (EN)
2015 Minimum Wage Adjustment – Decree #103/2014/NĐ-CP, 11/11/14 (VI)
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.
Published: Dec 4, 2016