• Bloomberg

Vietnam: Wage Increase Vexes Both Employers and Employees

Vietnam will raise wages 6.5 percent in 2018, a record low that illustrates the country's struggle to balance the interests of workers, for whom the ruling Communist Party was founded, and those of a growing economy fueled by foreign manufacturers.

The minimum wage, which will range from 2.8 to 4 million Vietnam dong monthly ($123.20 to $176), is a key draw for companies from Samsung to Gap to source their products from this former war zone. The increase on Jan. 1 will precede a revision of the Labor Code expected to dismantle worker protections such as caps on overtime hours and breaks for nursing mothers.

‘A Challenge for Workers'

“This will be a challenge for the Vietnamese workers, who mostly are having to struggle hard to survive with the small income,” said Trinh Khanh Ly, a doctoral candidate at Ghent University in Belgium who researches Vietnam's labor policies.

At the same time, Ly told Bloomberg BNA, the higher costs could deter foreign investors, who already are having second thoughts because the Trans-Pacific Partnership didn't pan out as they'd hoped. She said those investors may be eyeing Asian neighbors with lower monthly pay—$110 in Laos and $80 in Myanmar.

“According to my personal point of view, the Vietnamese government is taking a risky decision to increase minimum regional wages in this context,” Ly said.

‘Minimum Living Needs'

Vietnam News, the government wire agency, reported that 6.5 percent is believed to be the smallest pay increase ever in the Southeast Asian country. Minimum incomes rose 12 percent in 2016 and 14 percent in 2015.

Most companies polled by the Vietnam Chamber of Commerce and Industry asked for no pay raise for 2018, according to an Aug. 7 post on the Ministry of Labor, Invalids, and Social Affairs website, which announced the 6.5 percent bump. The businesses argued that payrolls have been rising for years without a commensurate rise in productivity, even as they've faced financial hardship.

In the same post, a union leader said the wage boost would not meet basic living costs. Mai Duc Chinh, vice chair of the country's only labor union, the Vietnam General Confederation of Labor, said his own group's survey showed 51 percent of workers earn just enough to live, while 12 percent cannot cover their expenses.

The 2012 Labor Code requires earnings to be based on the “minimum living needs of the employee and his/her family.”

“Vietnamese law is very pro-employee,” Trung Khuat, an associate at Baker McKenzie in Ho Chi Minh City, told Bloomberg BNA.

The nominally socialist country of 92 million people provides a host of safeguards for workers, from paid maternity leave to union-employer discussions before any firings. Not all those safeguards are predicted to survive Vietnam's modern journey toward capitalism, which began with the Doi Moi era of privatization in the 1980s.

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