Wage jump will turn the screws

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However, it will further burden enterprises and business leaders also warned that the move could reduce foreign direct investment in Vietnam.

Under the Decree 103/2012/ND-CP issued on December 4, 2012 on promulgating an increase in local and foreign invested enterprises’ minimum wages by location, starting January 1, 2013, geographic regional monthly minimum wages will be raised by an average 17 per cent.

The new levels of minimum wage will serve as the base for pay agreements between employers and employees.

Also the Law on Labour Union, adopted in June 2012 and took effect from January 1, 2013, stipulates that all enterprises in Vietnam have to use 2 per cent of their total payroll to pay trade union dues every month. Previously, this level was 2 per cent for Vietnamese organisations and enterprises, and 1 per cent for foreign enterprises. However, Nguyen Viet Thang, director of locally-owned garment exporter Garment 261 Joint Stock Company in Hanoi, said the minimum wage rise meant his company would monthly have to add about $6,730 for the payroll.

“We will have to lift not only wages, but also payments for many other packages like insurance and allowances. It is because these packages are calculated based on the minimum wage,” Thang said. “Meanwhile, our performance in 2012 saw a 15 per cent reduction in revenue and the situation may continue this year due to our shrinking export markets in Eastern Europe, the US, Germany and Russia.”

“I think the new rises in minimum wages and trade union dues will cause more difficulties to labour-intensive firms this year. Many of my partners said they might face lay-offs in 2013 and tens of thousands of workers will be unemployed.”

A foreign invested garment company with 4,500 workers in southern Binh Duong province calculated that it would have to earmark an additional $75,690 per month as the company was located in the first region under the Decree 103. The sum would total nearly $908,300 annually. A double rise in trade union dues would also badly affect this company’s performance.

“The doubled trade union dues, paid by foreign invested enterprises, is a step in the absolutely wrong direction for Vietnam,” said Thomas Bo Pedersen, managing director of Danish garment-maker Mascot International Vietnam.

“With 1,500 employees it is a huge burden on us to increase such fees. The same is true for all other companies,” Pedersen said.

However, according to the Vietnam General Federation of Labour, the new trade union dues are intended to ensure equality between local and foreign invested enterprises and protect local workers’ interests.