2015 minimum wage plan requires sacrifice for long-term benefit

Bui Sy Loi, deputy chairman of the National Assembly Committee for Social Issues

Why is it that wages may go up, but not net income?

The minimum wage is the lowest level stipulated by the government, based on which employers and employees sign their contracts. The wage they agree on is then used to calculate the amount they have to pay for social, medical and unemployment insurance, which total 10.5 per cent of the wage. When the minimum wage rises by 15 per cent, a worker’s total income (from many sources including wage) is not likely to also rise by 15 per cent, while the amount he/she has to pay for social insurance also increases, so net income is likely to rise by less than 15 per cent.

So in what case would the wage rise but the net income decrease?

As of now, the amount a worker has to pay is calculated on the monthly wage, which currently averages at between VND2.3 million ($108) and VND2.5 million ($117). Starting July 1, 2015 when the amended Law on Social Insurance comes into effect, the amount of insurance a worker has to pay will be calculated based on a worker’s total income, meaning wage and other incomes that are equivalent to wage, which currently averages at between VND3.8 million ($178) and VND4.2 million ($197), so the net income of some workers may decrease.

Is it reasonable for the net income of some workers to fall while the economy is growing?

The net income of some workers may decrease with the wage increase and the new way of calculating the amount they have to pay for insurance, but the amount by which the net income falls is in fact a form of savings at a time they are still healthy and working so that when they retire they have better pensions.

It’s true that currently the minimum wage does not follow the Labour Code in that it does not meet the basic living needs of a worker and their family, but the increase has to be gradual. Otherwise there is going to be a big effect on employers because they currently spend 22 per cent of their wage funds paying for social, medical and unemployment insurance.

So if workers want higher wages there are only two ways: working more hours and/or higher productivity?

Increasing work hours is not possible at many firms because the Labour Code caps overtime at 12 hours/day, 30 hours/month and 200 hours/year. Even at firms that have yet to meet the cap, it’s still difficult to arrange overtime without affecting productivity because workers have only so much energy. So the only way is to raise productivity. This needs time because it depends on workers’ skills and enterprises’ technologies.