Chairman’s Insights: Wage Growth and Productivity

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The Government is currently in discussions with employers, the Ministry of Labour and Social Affairs, and the National Wages Council on the increase in Vietnam’s minimum wage for 2019.

In 2018 Vietnamese employees received the highest regional salary increases at 10% compared to Thailand at 5% and a regional average of 8%. In fact it has been a trend for many years that the Government, at the request and through the lobbying of the trade unions and support from Molisa, has raised the minimum wage much higher than the increase in inflation and far more than the increase in productivity.

Vietnam has one of the lowest rates of growth in rates of productivity in ASEAN, which can only be bad news for manufacturers using low or unskilled labor. This is a danger to future investment into manufacturing and also to the large scale employment offered by the manufacturing sector.

While we do not condone unfair labor practices or employers not paying a livable wage, at some point the increase in labor costs together with the relatively high cost of health and social insurance will start to make these products uncompetitive. This will in turn cause companies to look for new locations with cheaper overall costs. We have already seen quite a lot of manufacturing moving to Vietnam from China largely because of the increase in wage costs, and there are many other examples, such as Korea and Taiwan relocating businesses.

Somehow, increases in remuneration need to be linked to inflation and productivity in order to avoid a migration of manufacturing and to avoid future employment and labor issues.

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