Burden balancing ahead for firms in minimum wage shift

The National Salary Council on December 20 gave the green light to lifting the regional minimum salary by 6 per cent. The increase will be submitted to the government for approval. If approved, as is likely, such a hike will take effect on July 1 as is customary.

Minimum wage adjustments should take into account inflation, economic growth, labour productivity, and other aspects Photo: Le Toan

From that date, the salary in Region 1 areas will be adjusted from approximately $197 to $210 per month. The 6 per cent increase is equivalent to a rise of $10.50 in Region 2, and $9.30 and $8.40 in Regions 3 and 4, respectively.

Currently, the minimum monthly salary of workers in enterprises in Region 2 is $175, in Region 3 it is $153, and in Region 4 it is $137.

Region 1 covers the urban areas of Hanoi and Ho Chi Minh City, while Region 2 encompasses the rural areas of Hanoi and Ho Chi Minh City, along with major urban areas in the country such as Can Tho, Danang, and Haiphong. Region 3 covers provincial cities and the districts of Bac Ninh, Bac Giang, and Hai Duong provinces; and Region 4 embraces the rest of the country. The geographical classification is determined based on the employer’s place of operation.

After the adjustment announcement, Doan Tien Dung, CEO of Nam Ha Garment JSC, expressed concern that the rise will cause a burden for the company. Each month, the company already has to pay around $29,500 for union fees and social insurance. “We may face pressure to cut production cost to offset the adjustment, while still having to ensure stable income for employees,” Dung said.

Le Van Thanh, Deputy Minister of Labour, Invalids, and Social Affairs, and chairman of the National Salary Council, said the proposed pay rise is reasonable. “Increasing the regional minimum salary was a difficult decision due to difficult economic trends, businesses lacking orders, and unemployment,” Thanh said. “However, the council has also considered the difficult circumstances of workers in recent times. Without a salary increase, it will be difficult to meet their needs in the context of inflation, while the base salary of the state sector and pensions already increased in July 2022.”

Nguyen Thi Huong, general director of the General Statistics Office, said the ratio of the regional minimum salary to per capita income in Vietnam is currently about 40 per cent, some distance from the average of 54.1 per cent of 149 countries and the level of 60 per cent of European countries just five years ago.

“Paying salary correctly is investing in human resource development, creating motivation to improve labour productivity and work efficiency,” said Huong.

An International Labour Organization (ILO) report assesses that since 2015, Vietnam has increased the minimum salary in a consistent manner, from $119 per month to the current $168 per month.

Although the nominal minimum salary increased 42.7 per cent, the impact of inflation caused real salary during this period to climb 20.1 per cent.

Similarly, in the 2020-2022 period, the minimum salary was adjusted by over 6 per cent, but real salary only increased 0.7 per cent. In 2021, Vietnam temporarily suspended minimum salary adjustments due to the pandemic.

In Southeast Asia, Vietnam is one of the few countries to maintain salary increases that help increase the real value of workers. The report also said that strong inflation reduces the purchasing power of the minimum salary, affecting about 186 million salary earners in Asia-Pacific.

As a comparison, because of mostly high inflation, countries like Thailand (2.7 per cent real drop in minimum salary), Australia (2 per cent), and Laos (27 per cent) have seen actual minimum salaries dip since 2019.

The ILO believes that minimum salary adjustments should be based on accurate data on inflation, economic growth, employment, the solvency of businesses, and labour productivity. The adjustment level must also keep up with inflation to maintain the true value of the salary increase, enough to balance the needs of local workers and their families.

According to a survey on working life in the first half of 2023 by the Vietnam General Confederation of Labour, the average income of workers reached nearly $340 per month, while their family’s monthly expenditure was just over $500. Thus, income currently only meets about 70 per cent of survey participants’ spending, while workers’ expenditure has also risen by 19 per cent compared to 2022, mainly due to increased prices of electricity and water bills.