Businesses worried sick about minimum wages

VietNamNet Bridge – A lot of businesses say they have to borrow money from commercial banks to pay to workers.

minimum wage, business, worry

From July 1, 2013, the minimum wage of workers would be VND100,000 higher than the current level, at VND1.15 million instead of the current VND1.05 million.

The director of a construction company in Hanoi admitted that with a lot of exertion, the company made a modest pretax profit of VND96 billion in 2012. Meanwhile, the company only fulfilled 30 percent of the yearly business plan in the first half of the year.

“I tried my best to maintain the average salary of VND5.64 million a month last year. Meanwhile, I have to cut the salary by 30 percent in recent months,” he said.

With the VND100,000 increase in the minimum wage, from July 1, the company would have to pay VND20 billion for the existing 200 workers. “We are considering many ways to arrange money to pay to workers. One of the methods is borrowing money from banks,” he said.

Nguyen Tien Nghi, Deputy Chair of the Vietnam Steel Association, said once the minimum wage is raised, the insurance premiums and other expenses businesses have to pay would be higher, which would be really a big headache to businesses.

Analysts have warned that the labor intensive industries, including electricity, coal and cement would suffer most from the new regulation on the minimum wages, because their expenses would be hundreds of billions of dong higher than currently.

Nguyen Van Bien, Deputy General Director of the Vietnam Coal and Mineral Industries Group said with 138,000 workers, the group would have to pay tens of billions of dong a month.

Deputy Chair of the Vietnam Leather and Footwear Association -- Ngo Dai Quang, said the social insurance premiums would be hundreds of millions of dong higher.

Nevertheless, the biggest worry for businesses is not that businesses would have to pay higher salaries to workers, but that the prices of goods and services all would also escalate, which would lead to the higher production costs and weaker competitiveness of enterprises’ products.

“The biggest problem is that while the minimum wages increase by a little, the goods and service prices in the market would increase by many times,” Quang said.

“The expenses on the labor force gobbles up 5-7 percent of the total expenses for footwear enterprises. Once the minimum wage increases, all other kinds of goods and services would increase, from input materials to petroleum, electricity and water,” he added.

Analysts say a vicious circle has been existing in Vietnam for the last many years. Since the goods prices and service fees are always much higher than the average incomes of workers, the State has to raise the minimum wage to be sure the wage can cover the basic needs for workers.

However, when the minimum wage increases, the prices of goods and services would also increase thus making the minimum wage increase nonsensical.

Minister of Labor, War Invalids and Social Affairs -- Pham Thi Hai Chuyen, has also admitted that though the minimum wage has been raised 10 times since 1003, the current minimum wage is still not high enough to cover the basic needs for workers as stipulated by the Labor Code.

According to Chuyen, the current minimum wage can only satisfy 60 percent of the basic demands.

Nhat Ha

minimum wage, business, worry