Minimum wage set for early rise

The increase to minimum wages will help workers cope with inflation

It is a move the Ministry of Labour, Invalids and Social Affairs (MoLISA) said would not blunt Vietnam’s competitive edge on labour costs.

In a proposal sent to the government early this month, MoLISA proposed raising minimum salaries on October 1. The salary hike is an annual part of the government’s 2008-2012 roadmap, but this year it will be implemented one quarter earlier than originally scheduled.

Under the MoLISA proposal, the increases will be divided into four zones. In the first zone covering the urban districts of Hanoi and Ho Chi Minh City, the monthly minimum salary will be VND1.9 million ($91.7), an increase of 22.5 per cent. In the fourth zone covering localities having underdeveloped conditions for a developing economy, the new minimum wage will be VND1.4 million ($67.6), up 27.2 per cent. The new minimum salaries will apply to both domestic and foreign-invested enterprises operating in Vietnam.

Pham Minh Huan, MoLISA Vice Minister, said the increase aimed to ensure the livelihood of workers affected by high inflation, which rose to 20.82 per cent in June year-on-year.

“Due to high inflation, we have proposed that the government increase the minimum salary in the last quarter of this year, instead of in the first quarter of next year,” said Huan.

But the proposal, which comes at time when foreign manufacturers are losing confidence in Vietnam because of economic instability, power shortages and labour unrest, raises questions about whether Vietnam will loose its advantage of low labour cost.

However, Huan believes this salary hike would not put a dint in the country’s low labour cost advantage.

A survey of 95 Japanese manufacturing firms operating in Vietnam conducted by the Japan External Trade Organisation late last year showed that the average monthly salary for workers in manufacturing sector in Vietnam was only $107 per month, while for China the figure was $303. In Malaysia, the salary was $298, Indian workers earned $269, Thai workers $263, their Filipino counterparts $212 and Indonesian employees $182.

In Asia, only Cambodia, Bangladesh and Myanmar can offer average monthly salaries for a manufacturing worker lower than those of Vietnam. But the average monthly salary in Vietnam has actually come down in dollar terms since February 2011 when the government depreciated the dong for the fourth time in 15 months.

In fact, more and more international companies have moved production to Vietnam to take advantage  of low labour costs. Nike, the world’s leading sport equipment and clothes producer, is one example. Last year, Vietnam produced 37 per cent of Nike shoes, surpassing China’s 36 per cent and becoming Nike’s largest outsourcing country in the process. With the next salary hike, the new minimum salary is still below $100. And the real average salary that workers usually receive from foreign employers is just a little higher than the minimum salary.

“Even with the recent salary hikes, Vietnam remains relatively cheap against other competitors,” said Hong Sun, general secretary at Korea Chamber of Commerce and Industry in Vietnam.

A survey of Japan Bank for International Corporation showed that only 21.2 per cent of manufacturers in Vietnam were concerned about the rise of labour costs while this proportion in Thailand was 25 per cent. In China, this concern was much higher at 63.7 per cent and in India it stood at 43.9 per cent.

The biggest labour issue facing foreign manufacturers in Vietnam is not rising labour costs but the difficulty in recruiting workers. A labour shortage last year forced Japanese Canon Corporation to build a printer manufacturing factory in Thailand instead of Vietnam.

But Ngo Chi Hung, vice head of Hanoi Industrial and Export Processing Zone Management Authority, said the salary hike would also ease the recruiting difficulty for foreign manufacturers. He said most of the 257 foreign-invested companies in Hanoi’s industrial zones paid salaries to workers at the minimum level which led workers to leave factories seeking higher wages.

Most of 34 strikes in the capital’s industrial zones since early this year were wage-related, added Hung.

The situation is similar in Bac Ninh province, home to projects run by companies including Samsung, Foxconn, Tyco, Pepsico, and Canon and considered a manufacturing hub in northern Vietnam.

Bui Hong Mai, vice head of Bac Ninh Industrial Parks Management Authority, said the province had witnessed 14 wildcat strikes occurred at foreign-invested companies. All of them were the result of wage issues.

“The salary hike would help workers cope with high inflation and ease labour unrest at foreign invested companies,” Mai said.