ASEAN’s Rising Minimum Wage Levels: Vietnam
By Dezan Shira & Associates
Posted: 6th November 2013 14:06
Several ASEAN countries have raised their minimum wage standards recently to adjust their respective salary levels to the rising costs of living and to provide their citizens with higher purchasing power. However, many businesses and investors have complained that the somewhat drastic wage hikes have hurt the market in terms of competitiveness and lowering worldwide interest in establishing a business presence in these countries – which would truly be a blow to an emerging ASEAN.
The ASEAN countries that have recently raised minimum wages are Thailand, Vietnam, the Philippines, Malaysia and Indonesia. We’ll discuss Vietnam in this article.
In Vietnam, the general legislative standard for minimum wages throughout the country is stipulated under Chapter VI of Vietnam’s Labor Code (2012). This, in essence, enacts a government-set minimum wage base standard to be given to employees that varies by region and industry as recommended by the National Wages Council, a 15-man advisory agency made up of representatives from the Ministry of Labor – Invalids and Social Affairs (MOLISA), the Vietnam General Confederation of Labor and the representative organization of regional employers.
There are currently four different regional minimum wage levels in Vietnam that are amended periodically on a non-regular basis. Since 2003, Vietnam has increased its minimum wage levels ten times, with the real minimum wage rate increasing by over 100 percent from 1994 to 2008.
Furthermore, Vietnam’s general minimum wage rate was increased by way of Decree 103/2012/ND-CP in 2013 (detailed below). Generally, the minimum wage laws cover formal sector workers who work 40 hours per week at a rate of about seven to eight hours per day.
Why and What
The Vietnamese government’s decision to adjust its minimum wage standards within the past year came about after a study by the Vietnam Labor Union found that a properly sustainable diet – which is defined as a diet of about 2,300 calories a day – costs approximately VND900,000 (US$42) per month to fund. MOLISA also noted that the previous minimum wage rate covered just 60 percent of the total cost of living of the country’s many factory workers.
This decision was also likely a response to the over 1000 strikes held by factory workers making minimum wage in Hanoi and other surrounding cities that have taken place over the last few years. As a result, Vietnam’s average minimum wage rates have risen by a fairly sizable amount over the past decade, even rising up twice in 2011 alone.
Specifically, the minimum wage rise will set the monthly minimum wage rate at VND2.35 million (US$111) for Region 1, VND2.1 million (US$100) for Region 2, VND1.8 million (US$86) for Region 3 and VND1.65 million (US$78.5) for Region 4. This represents an average increase of about 15 percent that has unfortunately somewhat affected the country’s labor-intensive industries, such as the garment, shoe and parts manufacturing industries.
Region I covers the rural and urban districts of Hanoi, Ho Chi Minh City, Hai Phong, Bien Hoa City, Thu Dau Mot City, Vung Tau City of Ba Ria-Vung Tau Province, and some rural districts of Dong Nai and Binh Duong Province. Region II covers the remaining rural districts of Hanoi, Hai Phong, Hai Duong City, Hung Yen City, and some rural districts of Hung Yen Province. Region III covers the remaining provincial cities, Chi Linh town, and some rural districts of Hai Duong and Vinh Phuc Province. Region IV covers the remaining localities.
For comparison, Shenzhen has China’s highest monthly minimum wage level at RMB1,500 (US$245), while Delhi has India’s at INR8,112 (US$147) per month.
Despite rising minimum wages typically coming about as a result of an improving economic situation, Vietnam’s recent minimum wages seem to come about despite the country’s floundering economic situation. Not only has Vietnam’s gross domestic product (GDP) been growing at the slowest annual rates in over a decade, but the country has also been battling rising inflation rates.
The central bank of Vietnam cut its refinancing rate for the sixth time last year in December as the economy expanded by just 5 percent in 2012, the smallest gain since 1999. Further, rising inflation rates may now limit the scope for further monetary stimulus policies and increased foreign investment.
Vietnam raised its interest rates multiple times in 2011 to prevent the economy from overheating and to rein in double-digit inflation. As such, Vietnam’s 2013 inflation rate is now expected to fall somewhere between 8 and 10 percent. However, the Vietnamese government wants to keep it at between 6.0-6.5 percent.
As a result, many items and services throughout the country have experienced price surges, such as healthcare and pharmaceuticals rising 55.6 percent, education jumping up 17.3 percent, clothing and footwear prices rising by 8.36 percent and housing and construction costs increasing by 7.73 percent year on year.
Luu Bich Ho, former head of the Development Strategy Institute under the Vietnamese Ministry of Planning and Investment, even noted: “What I am most concerned about is that high inflation will damage social resources and sap the confidence of investors and people,” which would hurt Vietnam’s reputation as an attractive business destination in the short and long term.
Unfortunately, the Vietnam Center for Economic and Policy Research confirmed Ho’s thoughts, noting that in 2012 the total amount of foreign direct investment into Vietnam declined, accounting for just 33.5 percent of GDP (compared to 34.6 percent of total GDP in 2011). Total registered foreign capital also dipped by over 20 percent in the same year.
However, these negative trends have been diminishing in 2013, with the country’s GDP expected to grow by over 5.3 percent this year before slowly increasing to over 5.4 percent by 2015. The country also saw headline inflation decrease from 23 percent in 2011 to just 7.3 percent by July of 2013.
Further positive trends include Vietnam experiencing a trade surplus for the first time since 1992, with the country’s current account deficit rising from a deficit of 11 percent in 2008 to a record surplus of 5.9 percent. In addition, Vietnam’s total export value has already grown by over 15 percent during the first eight months of 2013 to reach a value of US$85.2 billion, with foreign-invested companies accounting for over 60 percent of the total figure.
This article was first published on Vietnam Briefing.
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