Should the Minimum Hourly Wage be Increased?

The increase in minimum wage is currently drawing public attention, with regional minimum wages continuously rising in 2015 and 2016, with an increase rate of over 12%. Recently, the Ministry of Labor, War Invalids and Social Affairs has proposed to increase the regional minimum wage from January 1, 2017, with an increase ranging from 180,000 VND – 250,000 VND per month depending on the region. However, the minimum wage still does not meet the basic living needs of the people.

The wage increase does not bring significant encouragement to either workers or enterprises. While employers bear additional cost burdens, especially those with high labor usage such as textiles, footwear, and seafood industries, workers face pressure when enterprises cut allowances and reduce labor to maintain operations. Before the regional minimum wage conclusion meeting, there was a proposal to pay the minimum wage by the hour due to its flexibility and convenience for both businesses and employees. Thus, should the minimum wage be increased hourly?

Currently, most countries pay the minimum wage by the hour. Determining the minimum wage must be based on the socio-economic development conditions, the labor supply-demand relationship, and must meet the minimum living needs. We are determining the minimum wage by region, based on factors like goods structure and food items, which do not accurately reflect the essence of minimum wages.

Paying the minimum wage by the hour will increase labor productivity and truly reflect the nature of wages in a market economy. Paying hourly minimum wages to adapt to the flexibility of the labor market, especially for part-time work, short-term jobs, and part-time employees. The hourly minimum wage is calculated based on the monthly minimum wage and includes all costs that the employer must pay to the employees working by month (including social insurance, health insurance, labor protection, vacation pay, holiday pay…).

The impact of hourly wage regulations on enterprises and employees

For enterprises

It creates favorable conditions for businesses that only need to hire hourly employees, especially in implementing social insurance policies for those who only need part-time or hourly jobs. Enterprises have more options in recruiting labor.

However, for businesses that use many laborers and frequently require overtime, paying a regional minimum wage by the hour is difficult to implement because these businesses base wages on productivity computed per product unit. The minimum wage is merely a basis for paying social insurance and other contributions. If paying the minimum hourly wage, these costs are relatively high.

For workers

For sectors that frequently increase overtime, this is good news, but there are still concerns that wage increases will lead to higher prices and reduced bonuses. Limiting overtime when paying by the hour leads to decreased income, not meeting living needs.

Although the discussion on increasing the minimum wage by the hour has been proposed, the Draft Decree on the regional minimum wage for employees working in enterprises, cooperatives, collective groups, farms, households, individuals, and organizations employing labor under labor contracts still proposes paying regional minimum wages. Whether the minimum wage regulations are applied as stipulated in the draft decree will depend on the official decree from the Government of Vietnam.

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