Wage Growth and Productivity

The Government is currently in discussions with employers and the Molisa and the National Wages Council on the increase in the 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%[1] 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 way higher than the increase in inflation and in fact 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 labour, and which is a danger to future investment into manufacturing and also to the large scale employment offered by the manufacturing sector.

Whilst we do not condone “slave” labour or employers not paying a livable wage, at some point the increases in labour costs, together with the relatively high cost of health and social insurance, will start to make these companies’ products uncompetitive price wise  and they will start to look for new locations, with cheaper 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 like Korea and Taiwan.

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

Kenneth M Atkinson