Minimum wage increase ineffective in raising living standards

August 21, 2017 | 22:14
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Increasing the regional minimum wage has raised concerns over a potential trade-off with social allowances that would block the new wages from increasing employees' real income. 
Hugaco expressed concerns that the minimum wage increase might actually decrease employees' real income

Cutting allowances to increase wages

At the final meeting organised on August 7 to discuss regional minimum wages increases in 2018, relevant authorities reached a compromise of 6.5 per cent to submit to the prime minister for approval. If approved, the increase will come into effect on January 1, 2018, however, questions were still raised whether employees will actually benefit from the increased regional minimum wage.

According to Deputy Minister of Labour, Invalids and Social Affairs cum chairman of the National Salary Council Doan Mau Diep, enterprises will have to cut existing allowances to compensate for the increased wage expenditure.

The reason for enterprises’ opposition to increasing the regional minimum wage is that they will also have to bear the increasing expenses of social and health insurance.

“Increasing the minimum wages will raise social and health insurance spending. Both enterprises and employees will have to bear this rising burden, and as a result, employees’ wages will increase but their incomes might very well decrease,” said Nguyen Xuan Duong, chairman of the board of directors of Hung Yen Garment Corporation (Hugaco).

Duong added that Hugaco currently has 15,000 employees and if the authorities’ proposal is approved, its social and health insurance expenditure will increase by VND18 billion ($791,820) per year. Only nine of Hugaco’s 14 subsidiaries are operating with profit, thus, a steep rise in expenditures will put Hugaco in a difficult position.

The representative of another enterprise said that they currently spend 60 per cent of the company revenue paying salaries. If both the regional minimum wage and insurance fees increase, the enterprise will have to decrease existing allowances.

Will increased wages improve living standards?

Dang Quoc Huynh, an employee of Hankyong JSC, stated that he currently earns VND3.5 million ($153.97) in official salary, with a monthly allowance of VND700,000 ($30.79) and an overtime salary of VND2 million ($87.98).

Thus, the increase of 6.5 per cent, or VND230,000 ($10.12), is quite small. Even if there was no change in his income in case that the board of directors of Hankyong would decide to cut or decrease existing allowances.

The proposal to increase the regional minimum wage is tabled every year. Increases in the past three years were 15.1 per cent in 2015, 12.4 per cent in 2016, and 7.3 per cent in 2017.

However, according to a survey of the income and living standards of employees in enterprises in 2017 conducted by the Institute for Workers and Trade Unions under the Vietnam General Confederation of Labour, the percentage of employees who want to work overtime is quite high. Notably, the percentages in foreign invested enterprises, garment-leather, electricity-electronic, and manufacturing-processing were 46.9 per cent, 40.5 per cent, 48.5 per cent, and 47 per cent, respectively.

The reason for employees’ demand to work overtime is that they want to earn enough money for basic expenditures, including rent, food, tuition for their children, and healthcare.

Thus, the institute concluded that increasing the regional minimum wage will not be enough to help employees meet their minimum living requirements.

Nguyen Dinh Cung, director of the Central Institute for Economic Management, stated that instead of organising annual meetings to discuss regional minimum wages, local authorities should carry out a comprehensive reform in the labour market so that both enterprises and employees can benefit.

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By By Tran Ha

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