The National Wage Council finalized the 2017 wage increase plan on August 2, to submit to the Government of Vietnam with a proposed increase of only 7.3% compared to 2016, which is 213,000 VND (ranging from 180,000 VND to 250,000 VND per month depending on the region).
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In 2015 and 2016, the Government of Vietnam continuously increased the minimum wage with an annual raise of over 12%. However, the current minimum wage still does not meet the minimum living needs. Recently, the National Wage Council has decided on a regional minimum wage increase for 2017, which is 7.3% higher than in 2016.
The wage increase contributes to more income equality among labor segments in society. It is easy to recognize that increasing wages is good for workers, but wage increases always have multi-dimensional impacts and various consequences in terms of costs, competitiveness, macro and micro financial stability, and social equity.
Increased Burdens on Enterprises
The biggest concern for enterprises is profit and cost. With wage increases, businesses will have to shoulder a range of additional costs such as:
- Increased labor costs as enterprises must compensate for the income of newly recruited workers, unskilled workers, and those with limited working capacity;- Since the minimum wage is the basis for determining the starting salary in the wage scale system, additional contributions to social insurance, health insurance, and unemployment insurance costs, as well as union fees, will increase.
To ensure sustainable business operations, productivity growth must outpace wage increases. Over the years, the minimum wage increase in our country has always exceeded productivity growth. The textile, footwear, processing, and seafood sectors are most affected by wage increases, especially small and medium-sized enterprises. Vietnamese small and medium-sized enterprises receive little support from the State, have limited capital, and their capability to increase productivity is hampered in the market economy.
Therefore, continuous and high increases in the minimum wage not only raise labor costs and reduce competitiveness and investment capability in labor productivity to sustainably enhance worker income, but also affect the labor market and the structural shifts in industry, agriculture, and services.
Failing to Meet Minimum Living Needs and Most Workers Do Not Benefit
In reality, the current wages and actual incomes of the majority of workers are still low compared to the basic living needs, insufficient to cover essential living expenses. With low wages, most workers have to work overtime to increase their income and improve their living conditions. Meanwhile, enterprises often split wages, paying workers slightly above or at the minimum wage level and compensating with various allowances and additional subsidies. However, in difficult times, enterprises are ready to cut non-wage allowances to save production costs, reducing worker incomes.
With minimum wage increases, corresponding allowances will decrease, and social insurance, health insurance, and unemployment insurance fees will also be deducted. Then comes the vicious cycle of increased wages leading to increases in commodity prices and rent, making workers' lives even more difficult.
Moreover, in tough times, enterprises are ready to cut labor to maintain the business. In the event of job loss, difficulties become even more overwhelming, as both income and employment are vital for them.
Thus, while wage increases aim to ensure workers' minimum living needs, they also lead to many other consequences.
Recently, several textile enterprises have voiced opposition to the regional minimum wage for 2017, arguing that the increase is too high and places significant pressure on businesses. The regional minimum wage plan for 2017 by the National Wage Council still awaits the Government of Vietnam's decision and will be applied if approved.
