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Labour Productivity- is a breakthrough imminent?

Labour productivity has long been a discussion point among foreign investors, particularly in the context of the annual discussion with trade unions, Ministry of Labour and the Government on the increase in the minimum wage. Last year in fact was the first year I can remember when labour productivity grew (6%) at a higher rate than the minimum wage.

Increasing labour productivity is now considered to be a key strategy to help the country avoid the middle income trap and to ensuring higher sustainable economic growth. According to a recent UNDP report Vietnam’s challenge is to “transition to a new growth model based on rapid productivity growth, innovation…. and to provide more productive employment for the majority of Vietnamese people.”

A resolution of the 12th Party Central Committee in 2016 made increasing labour productivity as one of the three pillars for achieving a new growth model for the period 2016 to 2020 and it is reported that a wide range of policies and programs are being formulated such as SOE reform and the enhanced for startups and more support for SME’s to access credit etc.

In 2018, Vietnam’s labour productivity lagged well behind its regional competitors, such as Singapore whose productivity was 13.7 times that of Vietnam, Malaysia 5.3 times, Thailand 2.7 times and Indonesia 2.2 times[1]. However this difference is declining as Vietnam’s labour productivity is now growing at a faster rate than these regional neighbours at an average annual increase of 4.8% during the last 5 years and 5.8% in the period 2016 to 2018[2].

Now it seems that the progress is not fast enough to meet the Government objectives and it is reported that the Government will enact a directive to boost national labour productivity. The directive, still in draft form, is expected to help Vietnam achieve a breakthrough in labour productivity and it assigns tasks to ministries, agencies provinces and cities to apply solutions to labour productivity.

If enacted this would be a land mark directive and would be welcomed by all industry and in particular FDI enterprises.

[1] Vietnam Investment Review September16th 2019

[2] Vietnam Investment Review September16th 2019

 

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