Hourly minimum wage more conducive to labour productivity?

According to VEPR, Vietnam's competitiveness issues could be solved by introducing the hourly minimal wage

This was one of the proposals of the Vietnam Institute for Economic and Policy Research (VEPR) at the workshop themed “Labour Productivity and Wage Growth in Vietnam” organised by VEPR and the Japan International Cooperation Agency (JICA) today in Hanoi.

Vietnam is one of the countries having the lowest labour productivity in Southeast Asia. Average productivity per worker in Vietnam has improved significantly since 2010, by 23.6 per cent, according to figures from the General Statistics Office (GSO), but the gap between Vietnam and the region remains. Especially, Vietnam’s productivity was put at 15 times less than in Singapore, eleven times less than in Japan, and ten times less than in South Korea.

Bui Sy Loi, deputy chairman of the National Assembly's Social Affairs Committee, said that introducing the hourly minimum wage will increase labour productivity and will reflect the essence of the market economy. The hourly minimum wage will also create harmony in terms of benefits between enterprises and employees.

Nguyen Thi Lan Huong, former director of the Institute of Labour Science and Social Affairs, agreed with the hourly minimum wage due to its flexibility and convenience for both enterprises and employees.

Huong said that numerous countries in the world have applied the hourly minimum wage and they are listed in the top ten countries having the highest minimum wages. The ranks of these countries include Australia, Belgium, the Netherlands, New Zealand, and Germany.

“In order to increase labour productivity, the government should move the minimum wage policy and permits enterprises and employees to negotiate employees’ income among themselves. Enterprises have differences in terms of scale and recruitment policy and paying the salary based on labour productivity will stimulate the employees to work hard,” said La Van Thanh, representative of Foster Electric Co., Ltd.

These proposals were built to respond to concerns that labour productivity increases at a much slower pace than the minimum wage, badly affecting Vietnam’s competitiveness against regional competitors.

Vietnam has witnessed rapid increases in the minimum wage over the past years, which grew at double-digit annual rates during the 2007-2015 period, far exceeding per-capita GDP and CPI.

During the same period, the growth rate of the minimum wage was also higher than that of labour productivity. Specifically, the ratio of minimum wage to labour productivity saw rapid increase, from 25 to 50 per cent.

This pattern cannot be observed in other countries in the region such as China, Indonesia, and Thailand. The gap between the growth rates of minimum wage and labour productivity in Vietnam has widened faster than in other countries considered. (See chart below).

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