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Number of wage earners to rise

Released at: 14:33, 04/12/2014

Number of wage earners to rise

ILO report released on wages, minimum wages and gender pay gap,

by Tuong Lam

One-third of Vietnam's workforce depend on wages for their livelihoods, compared to the global average of over 50 per cent.

However, Vietnam is expected to narrow this gap as the share of wage earners in total employment is projected to grow rapidly in the coming decades. This was one of the results in the Vietnam Wage Policy in the Context of the Market Economy and Economic Integration Report released by the International Labor Organization (ILO).

As Vietnam continues to integrate more deeply into the regional and global economy, wage adjustment policies and practices need to be further improved to make sure a good balance is met between promoting enterprise development and also providing workers with a fair share of enterprise productivity gains. It is also important that wage setting is based on solid empirical evidence so that decisions reflect the needs of workers and their families, the needs of enterprises, and the needs of the labor market as a whole. In 2013, wage workers represented 34.8 per cent of total employment, up from only 16.8 per cent in 1996. While agriculture is home to about half of the workforce, it only accounts for a little more than one tenth of total wage workers. It also has one of the lowest average monthly wages (VND2.63 million ($125)), compared to that of workers in the financial intermediation, banking and insurance sector, who earned VND7.23 million ($344) a month, according to the Labor Force Survey 2013.

Technologies and sciences and real estate industries are also among those with the highest average monthly wages (VND6.53 million, or $311, and VND6.4 million, or $305, respectively). Although the overall gender pay gap in Vietnam is only a bit less than 10 per cent, it is extensive in the low-wage sector of agriculture, where women earn 32 per cent less than men (the widest gap). However, in the top two high-wage sectors (financial intermediation, banking and insurance, and technologies and sciences), female workers are paid slightly more than their male colleagues (3.4 and 1.4 per cent, respectively).

Wage levels have major implications for living standards. Since 2005, across ASEAN countries there has been modest growth in real wages (after allowing for inflation). In the past two years, driven partly by substantial increases in minimum wages, real wage growth has accelerated in Indonesia, Thailand and Vietnam. In Vietnam in 2012, average monthly wages reached VND3.8 million ($181), placing Vietnam ahead of Laos ($119), Cambodia ($121) and Indonesia ($174). By comparison, average monthly wages were $357 in Thailand, $609 in Malaysia, and $3,547 in Singapore. These large wage differences between ASEAN Member States reflect substantial differences in a number of factors, including labor productivity. As countries adopt new technology, invest in infrastructure, encourage structural reforms and improve the skills of their workforce, they lay the foundations for enterprises to become more efficient and to move into activities with higher value added.

As a member of ASEAN and increasingly entering into broader trade relationships, Vietnam could see a boom in growth and prosperity in the coming decade. In 2015 the ASEAN Economic Community (AEC), envisioned as a single common market and production base, will become a reality. Trade and investment liberalization will have significant impacts on the economy and labor markets in the following decade. With accelerated structural change under the AEC, supported by the right policies, Vietnam could increasingly compete in global markets based on higher productivity and better working conditions, the report stated. Wage setting institutions and policies play an important role in facilitating structural change, industrial modernization, and economic integration. The minimum wage rate constitutes a key policy instrument aimed at securing adequate incomes for the poorest workers. In the 2012 Labour Code, it is defined as “the lowest rate paid to the employee who performs the simplest work in normal working conditions and must ensure the minimal living needs of the employees and their families.”

Vietnam is committed to gradually raising minimum wages to meet workers’ minimum living needs. The minimum wage level in Vietnam is higher than Cambodia, Laos and Myanmar, but lower compared to most developed ASEAN countries. With the establishment of the National Wage Council in 2013, Vietnam significantly strengthened its minimum wage setting mechanism. The council gives trade union representatives and employer representatives a direct stake in minimum wage negotiations and recommendations. Currently, minimum wages are set by region (from January 1, 2015 ranging from VND2.15 million-3.1 million ($101-146), across the four regions). Minimum wage adjustments need to take into consideration a range of social and economic factors and strike a balance between the interests of workers and of businesses. A review of methods for determining minimum living needs of workers in Vietnam revealed major shortcomings in current estimates. Meanwhile, other research evidence shows that minimum wage increases over the period of 2001-2012 have led to an increase in real average wages within both low and high wage firms, albeit at the cost of a moderate decrease in employment. The minimum wage increases, however, have limited long-term effects on company revenues and profits.

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