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It is necessary to establish salary based on the actual productivity of the labor

07:58 | 05/10/2017

VCN- How does the rising food prices increase labor productivity and higher wages than productivity growth effect on the health of enterprises as well as the economy? The Vietnam Customs News had an interview with Dr. Nguyen Duc Thanh, Director of Vietnam Economic and Policy Research (VEPR).

it is necessary to establish salary based on the actual productivity of the labor

Currently, the Vietnam's wage increase is higher than the increase in labor productivity. What is the cause of this situation, sir?

In fact, the Vietnam’s wage increase level is quite high compared to other countries in the South East Asia, notably the Vietnam’s wages are higher than the labor productivity, the minimum wage has increased at an average level every year that reach the double-digit in the period 2007-2015, exceeding the GDP growth and CPI. The Vietnam’s labor productivity increases 4.4% per year, this is a high level but the Vietnam’s wages increase 5.8% per year. The difference between the increases in wages and labor productivity is 1.4% per year that is relatively high. This trend is similar to other countries such as China, Indonesia, or Thailand. The gap between the increases in the minimum wage and labor productivity in Vietnam is faster than other countries.

Average wages increase rapidly to 2010 but slow down significantly in the period 2010-2014, somewhat reflecting the decline in the economic growth. In addition, expenses for social insurance, health insurance, and unemployment insurance increased over time. The impact this situation above will make Vietnam gradually lose its production advantage because the wages are overpaying compared to the productivity of workers.

Why do we have such a wage increase? I think that because we have a process of setting the minimum wage that changes over time and other factor related to wages (such as social insurance…) does not base on a particular principle, just only based on the feeling and desire to make the better lives for workers.

As your view, how much the difference will effect on workers?

I think such high difference will make more people be separated from the labor market and increased the risk of losing their jobs because enterprises must pay too much for their workers. At the same time, when these workers lose their jobs, they will be not protected because we are using the minimum wage to protect the workers, but in general, it only protects who have a job. These are the inadequacies of the current minimum wage regime and the setting of minimum wages in Vietnam.

With the fourth industrial revolution, the impact will be greater because when the wage increase higher, enterprises will change to invest more in machinery and equipment that replace for workers. Actually, this depends on the financial ability of the enterprises. Because when enterprises must pay too high salary, their profits are also squeezed. Thus, they have no ability to invest in machinery and this is the problem of Vietnam’s enterprises.

With the fourth industrial revolution, Vietnamese workers will be trapped in the low-productivity. The first, there are not many jobs the second is forced to do these works with low-productivity and simply.

Many experts assess that Vietnam's low labor productivity is affecting the attraction of investment in Vietnam. What is your opinion on this issue?

I must be affirmed that Vietnam's low labor productivity has impacted partly in attracting investment and economic prospects of Vietnam but it is not as serious as the low productivity but high wages. That is the serious problem of the Vietnamese economy. Because investors, both domestic and foreign, can not invest in a place where they are forced to pay more than the contributions of the workers. Here I would like to emphasize that wages are higher than labor productivity in Vietnam is a major issue of the Vietnamese economy and thus, it will directly affect the investment as well as business and economic prospects. This is not in the future that has been happening.

If we continue to for or continue to rely on a low-productivity model, then we will lose the advantage of having the simplest workplace replaced by the easiest machine. Only highly skilled workers are replaced slowly, which is something we have to keep in mind. In addition, there is a possibility that we cannot move forward in the competition with other countries in the region for having a high-quality workforce.

Do you think rising wage can increase the labor productivity?

Based on the above analysis, I think it’s time for Vietnam to reconsider the process of establishing and changing minimum wages and other wage levels in the economy based on careful calculations, not depends on feelings or simple arguments such as minimum wage must meet the minimum living standard of the workers. We need to establish based on the real productivity of labor for the economy and on that basis, we adjust the increase of wages. For example, real GDP per capita growth or CPI growth ... are all fundamental but at the same time, we need specific calculations. And in my opinion, the National Wage Council needs to be more political, and the National Wage Council must have the participation of researchers, and evidence based on the real wages to comment or make a final decision.

Besides, the nature of the problem here, in my opinion, is not whether we want to adjust high or low minimum wages to have good worker benefits but the nature of the problem is that the productivity of the Vietnamese economy and its labor productivity. The labor productivity depends on many factors of the economy and we need reforms to increase productivity for Vietnamese workers. So they will get a bigger part in the production process, which will improve their lives better.

For people who are temporarily excluded from the labor market, the labor market is the unemployed or injured, we need a better social protection system and we should not rely too much on minimum wage. Because, as I have pointed out, the minimum wage can not afford to meet people like them, but it actually affects them more because it pushes more people out of the labor market.

Another problem is that the current minimum wage is being calculated on a monthly basis. We should shift to hourly pay, this would be more favorable and equitable to the employer without using a full month's labor and at the same time, it would be more favorable for the employee to do the job according to hours.

Thank you, sir!

Economic expert Pham Chi Lan:

Vietnam's report to 2035 points out that, in Vietnam's four biggest long-term concerns, labor productivity is low and declining is the first concern. In the period 2006-2010, the average productivity increased by 5.3% per year, but in the next 5 years (2010-2015), labor productivity increased by 3.5% per year. Obviously, although the industrial sector is constantly raising wages over time, it also does not help increase the labor productivity. The way of increasing wage recently is creating a backlash that is constraining competition and reducing motivation to increase productivity.

A research by the International Labor Organization (ILO) shows that in the next 10 years, up to 68% of workers in the textile and electronic industries can lose their jobs. This is because enterprises use machines instead of people, and the industrial countries tend to bring jobs back to their countries. Although salaries have increased, job losses have gone, this issue needs to be considered. We are raising wages for employed people, but not thinking of wages to create more jobs for those who have not yet worked, are waiting for work. In the next few years, the biggest worry is the lack of jobs, which is not a problem but must be taken into account. When lack of employment, it will affect social stability.

Mr. Fujita Yasuo, Chief Representative of JICA Vietnam Office:

Raising wages but not increasing labor productivity will increase the cost of enterprises and reduce the competitiveness of the economy, respectively. Therefore, Vietnam needs to pay attention to the salary mechanism and adjust the minimum wage accordingly.

Dr. Nguyen Van Thuat - Deputy General Director of the Journal of Socio-Economic Forecasting and Information:

Wages affect directly the living standards of the labor force and thus, striving to raise wages as an indispensable requirement of the labor force, which motivates the development of the labor force and the ability to work. In addition, wages are one of the most important economic tools in labor management, and people use this tool to stimulate attitudes of concern and responsibility for the work of the labor force. Therefore, wages are a strong factor to increase labor productivity, or in other words, for the labor, wages are the main source of income, in order to increase wages, they must increase labor productivity.

Recorded by X. T

By Tuấn Phong/ Kiều Oanh