Minimum wage, global supply chains and inclusive growth
ILO Viet Nam Country Director, Chang-Hee Lee, explains the impact minimum wage can have on the country's economy.
What is the view of the ILO on minimum wage increase of 6.5 per cent for 2018?It was a joint decision of the Government, employers and trade unions through the National Wage Council, which we, the International Labour Organization (ILO), fully respect. I am sure that it was not an easy process of reaching the consensus on minimum wage increase, as each party came from different perspectives and interests.
There can be different views on the 6.5 per cent increase. Workers and trade unions would say it is not sufficient to ensure minimum living standards. Meanwhile, employers, particularly those in export industries, would say their competitiveness will be eroded if minimum wage keeps going up. You can hear these arguments virtually in almost every country which is integrated into global trade.
Based on Viet Nam’s macro-economic performance figures, it could be said that minimum wage increase of 6.5 per cent is within a reasonable range. According to the Government statistics, Viet Nam’s GDP (Gross Domestic Products) grew at 6.2 per cent and CPI (Consumer Price Index) up by 4.74 per cent in 2016. And this year’s GDP growth is expected to reach 6.5 per cent and CPI at 4 per cent.
However, the effects of minimum wage can be different on different groups of employers and workers. In particular, businesses at lower end of global supply chains may feel their price competitiveness is being squeezed because minimum wage and wages have kept going up in recent years. But we must remember the other side of the equation. The assembly price (or Cut-Make-Trim price), for example, for a shirt or jeans, which Vietnamese suppliers can get from multinational buyers, has remained largely unchanged for almost a decade – in some cases even lowered. That is why employers in the export industries have been under constant pressure to improve the factory efficiency and reduce production costs, with strong desire to keep labour cost low to retain their profit margin which is squeezed between higher minimum wage, other costs and low assembly price. It indicates a need for multinational buyers to have engaging dialogue with Vietnamese suppliers and trade unions to ensure fair share of economic gains and social responsibilities. We all know that many multinational brands and companies made public commitment, through their corporate social responsibility (CSR), to ensuring full compliance with national minimum wages and respecting freedom of association and collective bargaining.
On the other hand, we need to see what positive effects new minimum wage can have in boosting domestic demands. Minimum wage affects not only workers whose salary is around that bottom line, but those with higher salaries through adjustment of wage scales within firms. It means higher minimum wage is likely to improve wage incomes of the majority of workers, which can boost domestic consumption and contribute to higher GDP growth.
So, when fixing minimum wage, we should look at different possible effects that this change could have on different sectors, companies with low and high productivity, and the entire national economy.
Trade unions say minimum wage should ensure minimum living standards of workers and their families. What do you think?The Viet Nam General Confederation of Labour (VGCL) has a valid point here. All trade unions around the world have the same objective of ensuring minimum living standards for workers and their families. The concept of minimum living standards is a relative one by time and by country. For example, as the economy grows, the list of people’s demands for consumption also expands. Twenty years ago, if we could have three meals per day and afford a bike, it might have been enough. But they are no longer sufficient today.
The ILO’s Minimum Wage Fixing Convention says that needs of workers and their families should be taken into account in fixing minimum wages. At the same time, the Convention suggests economic factors, which may include competitiveness and price stability, should also be considered.
The whole purpose of the minimum wage policy is to protect workers against unduly low wages. Meanwhile, when used carefully and with other policy instruments, minimum wage can have positive effects on less wage differentials and better gender equality.
To make minimum wage effective in setting the floor to protect workers at the bottom of wage scale while ensuring business environment for sustainable enterprise development, there are a few things Viet Nam could consider for improvement.
Firstly, the minimum wage fixing should be based on evidences about economic and labour market situation, to ensure that the new rates will be conducive to sustainable enterprise development while protecting workers against unduly low wages. To do so, Viet Nam needs to develop a better labour market information system.
Secondly, the technical capacity of Secretariat of the National Wage Council should be further strengthened. This body plays a significant role in providing in-depth analysis of economic and labour market data so decision-makers representing the Government, workers and employers can negotiate based on full understanding of the context and evidences.
Minimum wages only set the lowest level whereas wages should be decided through negotiations between employers and workers. What should Viet Nam do to improve the quality of collective bargaining?Minimum wage is a social policy tool designed to protect workers against unduly low wages. In theory, it should affect workers at bottom of wage scale in Viet Nam’s labour market. But at the moment, many unskilled or semi-skilled workers in even hi-tech large enterprises also receive minimum wage or just above minimum wage, and they have to compensate low wages by working long hours, often, beyond legal limit. This is related to underdeveloped collective bargaining.
Economic gains of enterprises, including large FDI companies in electronics sector, should be shared in fairer manner. This should be done through effective collective bargaining, and effective collective bargaining requires effective organization of workers, who can represent voices of workers, independently from employers. Unfortunately this is not often the case in Viet Nam’s workplaces.
There is a need to improve representational capacity of trade unions and collective bargaining practices at the workplace, if Viet Nam is to achieve its goal of sustainable and inclusive development where workers can gain fair share of economic growth, creating larger domestic market by boosting domestic consumption.
In this respect, I would like to emphasize that, as Vietnamese Government committed, the country needs to reform its labour laws and industrial relations in respect of ILO’s Declaration on Fundamental Principles and Rights at Work, which will lay a foundation for inclusive growth through effective industrial relations.
* Funding for the New Industrial Relations Framework project is provided by the United States Department of Labor under cooperative agreement number IL- 29690-16-75-K-11. This material does not necessarily reflect the views or policies of the United States Department of Labor, nor does mention of trade names, commercial products, or organizations imply endorsement by the United States Government. One hundred percentage of the total costs of the project or program is financed with Federal funds, for a total of 3 million dollars.
* This story is a product of the European Union-funded project on Promoting ILO fundamental conventions towards ratification of Conventions 87, 98, 105, and actions to eliminate discrimination and forced labour in Viet Nam. Its contents do not necessarily reflect the views of the European Union.