Vietnamese labor force is cheap or expensive?

VietNamNet Bridge – The Richest has put Vietnam into the list of the five markets with the cheapest labor cost in the world with $0.39 per hour. However, the actual labor cost could be higher.

Vietnam, labor force, advantages, FDI, competitiveness, GDP

The salary and the income

With the average pay of $0.39 per hour as reported by The Richest, every Vietnamese worker receives VND1.687 million a month for a 8-hour working day and 26 working days a month. The level is equal to the minimum wage being applied in the region 4 (VND1.650 million).

The Region 4 is the remote and underdeveloped area. Meanwhile, the other regions (1,2 and 3) have the minimum wages of VND2.35 million a month.

However, the pay mechanism in Vietnam is quite complicated. There exist the big differences between the minimum wage and basic wage and the laborers’ income.

Minimum wage is understood as the floor wage set up to protect the laborers in disadvantageous conditions. It has been referred to when calculating the social insurance premiums enterprises and laborers have to pay.

Basic wage is calculated by the product of the minimum wage and the coefficient, plus allowances (lunch fee, petrol for motorbikes and telecom fees…).

Meanwhile, income means the total sum of money a laborer can receive from the employers, which comprises of the wages, extra income from extra working hours, allowances.

As such, in fact, the enterprises in Vietnam have to pay to their workers higher than the level reported by The Richest.

The latest report of the Vietnam Labor Union released after a survey in 10 cities and provinces in June and July 2012 showed that the average total income of every laborer was VND3.623 million a month.

The actual income of laborers in Region 1 (big cities) was VND4.232 million a month. The figures were VND3.787 million in Region 2, VND3.495 million in Region 3 and VND3.001 million in Region 4.

The average wage paid to Vietnamese laborers is on the rise. The Ministry of Labor, War Invalids and Social Affairs (MOLISA) is now consulting relevant ministries on the plan to increase the minimum wage from now to 2017. It is expected that the average minimum wage would increase by 15-23 percent per annum.

Every time when the minimum wage increases, the labor cost would increases accordingly.

Vietnam pays heavy price for cheap labor force

Le Xuan Thanh, Deputy Head of the Labor and Wage Policy Department under MOLISA, noted that the low labor cost policy pursued by Vietnam in the last many years helped much in attracting investment.

However, the wage ground has been continuously heightened since 1993 with 11 adjustments made. This shows that the policy on maintaining the low wages to attract foreign investment to Vietnam may fail.

In principle, in order to ensure the benefits for both businesses and workers, the wage increase should be proportional to the productivity. However, in Vietnam, while the wage increases by 10 percent every year, the productivity increases by 3.5-5 percent only. This has prompted businesses to cut down their labor force.

The 2012 annual report of the Vietnam Chamber of Commerce and Industry (VCCI) has pointed out that the labor force at businesses has decreased sharply.

VCCI’s Secretary General Pham Thi Thu Hang said in 2002-2007, every dong paid to workers could bring 18 dong in turnover. Meanwhile, in 2008-2009, the figure dropped to 16 dong.


Vietnam, labor force, advantages, FDI, competitiveness, GDP