Intra-industry productivity rise essential to boost efficiency

Nguyen Bich Lam

The growth in Vietnam’s labour productivity has taken the lead in the region over recent years. Where does the country actually stand when it comes to this area compared to its regional peers?

Labour productivity based on 2018 prices is estimated at VND102 million ($4,435) per labourer, up VND8.8 million ($380) per labourer against 2017. Compared to the 2010 comparative price, the labour productivity of the whole economy last year inched up 5.93 per cent on-year, showing a remarkable increase.

Vietnam has witnessed a fairly high growth pace in labour productivity among ASEAN member countries. Between 2008 and 2017, the rate on purchasing power parity (PPP) based on the 2011 constant grew an average of 4 per cent annually, high compared to Singapore’s 0.9 per cent of average annual growth, Malaysia’s 1.1 per cent, Thailand’s 2.6 per cent, the Philippines’ 3.3 per cent, and Indonesia’s 3.4 per cent of average annual growth.

However, Vietnam’s current labour productivity is rather low compared to some regional peers. Based on the PPP 2011, it stood at $10,232 in 2017, equal to 7.2 per cent of Singapore, 18.4 per cent of Malaysia, 36.2 per cent of Thailand, 43 per cent of Indonesia and 55 per cent of the Philippines. Besides that, the disparity in labour productivity between Vietnam and regional countries is growing.

With the ongoing movements in labour structure transformation, could we expect a breakthrough in the country’s labour productivity in the coming time?

The labour transformation from rural to urban areas, from agriculture to the industry and services sector, and from informal to formal sectors will hold on, contributing to bettering the general labour productivity outlook.

This situation, however, may not be prolonged as Vietnam evolves to a higher development level, leading to higher incomes for people in rural areas. A more stable economy will lead to narrowing space for labour structure transformation.

Hence, to shorten the gap in labour productivity compared to other countries, Vietnam needs to bolster it in the business sector, meaning boosting intra-industry labour productivity instead of seeking for higher productivity through labour structure transformation.

Raising intra-industry labour productivity is a contemporary trend that is commonplace in developed economies as higher intra-industry productivity plays a crucial role in raising economic efficiency.

How can the country boost this intra-industry labour productivity in Vietnam’s current context given the tiny scale of many businesses, the obsolete equipment and production lines, and limited human resource quality?

These limitations are really great challenges to Vietnam’s economic development generally, and boosting labour productivity particularly as the GDP growth of a nation cannot be high and sustainable if growth was just based on simple work, low labour skill, and technology level.

Trade liberation and Industry 4.0 both provide opportunities for Vietnam to narrow the gap in labour productivity with other countries, but also bring the danger of Vietnam being left behind, unless it has a proper development direction with effective measures.

To push up economic development through higher labour productivity rather than heavily reliance on intensive labour, capital, and natural resources, the government needs to soon establish the National Productivity Committee, with a specific body which works on labour productivity, and whose core function is to combine forces to motivate labour productivity like those in place in Japan, South Korea, and Singapore for example.

Moreover, it is important to build and successfully ­implement the national ­strategy on labour productivity improvement, with general and specific targets in each period.

This must be a launch pad for higher labour productivity movements across the economy in which priority will be given to labour-intensive sectors such as textiles, equipment manufacturing, and electronics, while some localities become pioneers, from there deploying on a macro scale.