Lefaso urges caution over minimum wage increases

Vietnam
Published:  02 August, 2017

While employers seek to cap the minimum wage increase for next year at less than 5%, employees are pushing for an 8-10% pay raise, and the wide difference between the two sides will require another round of negotiations on August 7.

Companies in Vietnam want to achieve sustainable growth and any sharp rise in the minimum wage could force them to restructure production, resulting in staff layoffs and creating other social problems, said Hoang Quang Phong, vice president of the Vietnam Chamber of Commerce and Industry (VCCI), which represents employers.

Phong said the business performance of local enterprises has slightly improved. However, those active in the textile-garment, leather-footwear, seafood, and electronics sectors will face adverse effects from any large hike in the minimum wage.

A report shows there are around 54.4 million employees nationwide, but those having signed labour agreements with enterprises and cooperatives account for only 17%. As such, if the minimum wage is adjusted up strongly, other social factors will follow suit – lives of labourer’s subject to the adjustment and those working in the informal sector will be impacted.

Nguyen Duc Thuan, Chairman of the Vietnam Leather, Footwear and Handbag Association (Lefaso), said enterprises always regard their employees as a cornerstone to fuel their growth.

However, Thuan said, if enterprises do not find ways to increase the productivity of their workforce, and apply scientific and technological advances into their production, any pay rise will make Vietnam’s labour costs higher than those in other countries and thus less competitive.

He said that contracts may be shifted to other nations that have lower outsourcing prices. Therefore, enterprises might face a fall in the number of product orders, and their employees might lose their jobs.

According to the VCCI, worker salaries in the leather-footwear and textile-garment sectors accounts for 70-78% of their outsourcing costs for export products. Given annual minimum wage increases and decreasing outsourcing prices, enterprises have earned less profit.

As a result, many companies intend not to increase salaries for their staff in a regular manner, or even cut their bonuses to offset rising production costs.

The raising of the minimum wage will also entail increasing social insurance, union, and overtime payments for labourers.

According to the Vietnam General Confederation of Labor, the socio-economic situation has improved in Vietnam, and the CPI has remained high, at 4-5%, so a hike in the minimum wage that will be applied next year must also offset inflation.

A survey of the confederation reveals 51% of labourers in 17 provinces and cities nationwide have to work overtime in order to meet their living demand, and 54% of them cannot make ends meet at the current minimum wage level. Thus the confederation is pushing for a minimum wage rise between 8-10%.

Source: VietnamNet

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