Workers rejoice, businesses fret as minimum wage hiked

By Phuong Dung, Thi Ha   July 9, 2024 | 08:37 pm PT
While workers are happy to get more money following the government’s recent minimum wage hike, businesses are concerned about costs and competitiveness.

More than 3,200 workers at garment firm VitaJean will receive a bigger paycheck at the start of next month, courtesy of a new government decree issued on June 30.

Pham Van Viet, the firm’s chairman, believes this will significantly increase labor costs.

"We are facing a difficult situation," he says, referring to the fact that the company is struggling but cannot avoid hiking wages for its workers.

The new decree increased the minimum monthly base salaries for workers at businesses by 6%, equivalent to VND200,000-280,000 (US$8-11) depending on location.

In HCMC and Hanoi, the minimum base wage is now VND4.96 million per month, up nearly 80% from a decade ago.

Most workers are paid using a base salary, which is often at or around the minimum wage level, and they also get various allowances.

Thus, the decree should result in increased wage for most workers with the exception of those whose base salaries are already at least 7% more than the previous minimum level.

A worker at a garment factory in Da Nang City in June 2024. Photo by Nguyen Dong

A worker at a garment factory in Da Nang City in June 2024. Photo by Nguyen Dong

This, in the case of labor-intensive sectors like textiles, footwear and furniture, puts massive pressure on business owners.

Cao Huu Hieu, CEO of garment giant Vinatex, says his industry only saw demand pick up this year after a sluggish 2023, but a rise in labor costs will force them to hike prices, potentially hampering the recovery.

Concurring with this, Viet says logistics costs have also skyrocketed this year.

"My company had to constantly restructure, cut costs and improve technology to increase productivity."

He fears that if costs and wages continue to rise, his company may have to resort to lay-offs.

On the other hand, if they retain all their workers and instead hike prices, businesses are concerned their competitiveness will be hit.

But businesses do not necessarily have to pay all their employees more, given the exception set out in the decree.

At construction material producer Secoin, only about 10% of the workers will get a pay raise since most people’s wages are already 7% higher than the previous minimum level.

But the wage hike might not be all bad news for businesses as it could motivate workers to increase their productivity and competitiveness, analysts point out.

Dr Pham Thi Thu Lan, deputy director of the Institute of Workers and Trade Union, says all workers are concerned about their income, especially if it is low.

"They want to be loyal to their employers, but they cannot stay at one firm for long if their pay does not improve."

She says this is the reason for the high turnover rate of 8-12% a month in labor-intensive industries.

A reasonable minimum wage that covers their living expenses will alleviate workers’ worries and help them focus on their work, she says.

Dr Nguyen Tu Anh, director general of the department of general economic affairs under the Central Committee’s Economic Commission, says the salary hike should also drive businesses to innovate technologies.

Workers will be motivated to improve their skills if they want to keep their jobs or increase their incomes, he adds.

In contrast to the wariness business owners feel, workers are celebrating the boost to their incomes.

Lan Huong, a worker at a garment factory in Hung Yen Province, says her previous base salary was VND4.7 million.

The hike, though minor, could make all the difference in her day-to-day life, she thinks.

Consumers shopping at a supermarket in HCMC in June 2023. Photo by VnExpress/Quynh Tran

Consumers shopping at a supermarket in HCMC in June 2023. Photo by VnExpress/Quynh Tran

Some workers are concerned that the higher wages might push up consumer prices.

Nguyen Thu Oanh, head of the price statistics department at the General Statistics Office, says historically prices have increased along with minimum wage.

But the government has introduced various measures to soften the price rise following a wage increase, she says.

Since 2009 the minimum wage has risen by about 480%, but the consumer price index has only increased by 108%, she says.

In the first half of 2024 inflation was 4.08% year-on-year as against the National Assembly's target range of 4 - 4.5% for the full year.

But Oanh acknowledges it is likely that many will use the wage hike as an excuse to unconscionably increase prices.

Economist Assoc Prof Dr Dinh Trong Thinh says market regulators should ensure hikes in the prices of essential goods are kept at appropriate levels.

As for goods and services provided by the government such as electricity, healthcare and education, it should raise prices gradually to prevent sudden spikes that could affect consumers, he adds.

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