Viet Nam can well address labour market challenges

ILO Viet Nam Director Chang-Hee Lee answers some questions on COVID-19's impacts to Viet Nam’s labour market and the roles of social protection and suggests policy resonses.

Analysis | 15 April 2020
ILO Viet Nam Director, Chang-Hee Lee

What are the COVID-19's impacts to Viet Nam's labour market?

It is too early to give any credible forecast for Viet Nam, as we have no available data yet showing full impacts of COVID-19 on firms and jobs. We should wait until the release of the latest results of Labour Force Survey and Establishment Survey, which the General Statistical Office (GSO) is now working on with ILO support. There are some forecast based on surveys, such as Ministry of Planning and Investment’s estimate indicating 2 million jobs at risk, and VCCI survey telling that 50 per cent of companies in Viet Nam can survive maximum 6 months if the COVID-19 triggered economic crisis does not improve. But again we should wait until the results of GSO survey becomes available to get accurate picture of business performance and job loss.

However, one thing is clear. Most countries are facing a really difficult time as the world is experiencing an unprecedented severe crisis, the worst one since World War II. With various forms of lockdowns and social distancing, the global health crisis is quickly triggering a global economic and social crisis. According to the ILO’s latest estimates, full or partial lockdowns have affected almost 2.7 billion workers, representing 81 per cent of the world’s workforce. The ILO Monitor released last week indicated that working hours will decline by 6.7 per cent in the 2nd quarter of 2020, which is equivalent to 195 million full-time workers.

Around 38 per cent of the global workforce are employed in the sectors that are now facing a severe decline in output and a high risk of drastic and devastating increase in layoffs and reductions in wages and working hours. They include accommodation, food services, manufacturing, wholesale and retail trade, and real estate and business activities, transport, entertainment.

In Viet Nam, these sectors account for more than 22.1 million workers, or 40.8 per cent of Viet Nam’s employment. We are not saying that all of these workers would lose jobs – we are saying they are in high risk sectors which face enormous challenges for survival of enterprises and therefore for keeping their workforce.

And this has very important policy implications for policy-makers, businesses and workers in Viet Nam. They are labour intensive sectors, employing usually low-skilled and low wage workers. And they are sectors where female workers tend to be predominant. It means that COVID-19 crisis hit harder vulnerable workers and female workers. The top four sectors at risk identified in the ILO note account for 44.1 per cent of female workers in Viet Nam, versus 30.4 per cent of male workers. A special attention should be paid when the Government develops its support package in this regard. There is a grave concern that the unfolding crisis could further weaken their labour market situation.

Viet Nam depends a lot on global trade. Does it mean Viet Nam’s economy and labour market will be more severely impacted than many other countries?

Again, we do not have accurate and updated trade data for Viet Nam. According to World Trade Organization, the volume of global trade in 2020 is expected to fall between 13 per cent and 32 per cent. The first quarter trade data of Viet Nam was not too bad, with 0.5 per cent up in exports, 2 per cent down in imports and US8.55 billion in foreign direct investment But the full impacts of COVID-19 on trade and investment would be become clearer from the end of April. There are indications that it is going to be a lot worse in the 2nd quarter, as for example, there is no new foreign tourists coming to Viet Nam, while there is rapidly falling demands for Vietnamese goods in export markets, as most trade partner countries are under lockdown.

The seriousness of the ongoing global health/economic crisis is that it is impacting on both supply and demand sides. Under widespread lockdowns, it severely affects supply sides, as many factories’ operations are suspended, and demand sides as consumers in the US and Europe are ordered to say home. A problem is Viet Nam heavily relies on global trade. So we can assume that the impacts of shrinking global trade would be felt much more strongly and deeply in Viet Nam for both enterprises and workers.

It does not mean the country’s global integration strategy is wrong. On the contrary, it has proven to be a major driver of economic growth for Viet Nam’s development success story. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU-Viet Nam free trade agreement will provide great opportunity, particularly, for faster post COVID recovery.

But in designing the post COVID-19 development strategies, the Government may have to think how to make global supply chains more resilient and also very importantly how to broaden domestic consumer markets, how to support domestic service industries, and how to upgrade the competitiveness of Vietnamese companies in more agile and resilient manner.

Then how about domestic service sectors and domestic private enterprises, household businesses and farming, which may not be directly linked to the global supply chains?

They are not only extremely important during the height of COVID-19 economic crisis, when global demands for Vietnamese firms have fallen dramatically as the result of the disruptions in global supply chains, but also for longer term post-COVID-19 growth model.

Micro enterprises, family household business and rural farming were what supported Viet Nam’s economy during the American war, together with the State sector. They can offer temporary shelters to workers who may lose their jobs and return to their home town or rural villages. They have been the traditional source of societal resilience, and they will unfortunately play the traditional vital roles again at the height of the COVID-19 crisis.

A problem is that the magnitude and speed of the COVID-19 employment crisis may be far greater than household businesses and rural farming families can absorb. There should be a targeted Government support to them in various forms of subsidy so that people can endure the hardest moments of the crisis until the situation begins to return to normal gradually. In this sense, tough version of ‘social distancing’ may have to be gradually eased so that economic activities of micro enterprises and household businesses can provide their vital source of people’s life, resilience and peace. Of course, it should be ‘safe and healthy business’ with proper guidelines on social distancing in place throughout business activities. I think Viet Nam Cooperative Alliance and Viet Nam Small and Medium-sized Enterprises Association has important roles to play through its network of cooperatives in urban and rural areas.

In the longer term, it is strategically important to formalize informal businesses, to expand domestic consumption base, and to support domestic service industry. The country of almost 100 million population should develop substantial domestic markets led by domestic firms – this is one of most effective strategy to make Viet Nam’s economy resilient against external shocks. Formalization also comes with various social protection measures, which will make Vietnamese society more resilient against similar global health crisis in the future.

How about workers who are losing jobs due to the COVID-19 crisis? What should be done?

We do not know yet exact magnitude of employment crisis, as there is no latest labour force survey data available at this very moment. But signs are not good as I already quoted the Ministry of Planning and Investment forecast of more than 2 million workers at risk nationwide. It is certain that we now face a major employment crisis, which all – not only the government, but also enterprises, trade unions and workers – have to work together to minimize and mitigate.

Different enterprises are in different economic difficulties. There may be enterprises which cannot survive because of low productivity and low competitiveness, regardless of COVID-19 crisis. But there are also enterprises which are healthy and strong under normal circumstance, and which can survive long if they can be supported at the height of COVID-19 crisis, which blocks cash flaw, raw material and sudden fall of demands and order. It means the Government support should target those enterprises which have positive outlook as they are productive and innovative, but face temporary crisis. The Government should target those enterprises in its support packages.

And I would like to emphasize that the Government direct its support and subsidy package to enterprises which make best efforts to retain workers and to minimize layoff, by making adjustment to working hours, job sharing, on-the-job training, wage cuts which are consulted with trade unions and workers. It can encourage enterprises to make best efforts to retain workers or minimize layoff. Then, it can slowdown the process of layoff, minimizing societal shock it can trigger, while preserving workers’ productive capacity for quicker post-COVID 19 recovery.

In this sense, I believe that it is important for Viet Nam General Confederation of Labour and Viet Nam Chamber of Commerce and Industry to work together to jointly issue guidelines for employers and trade unions in managing employment crisis. ILO is ready to support such initiative.

Medical and health workers are on the frontline to fight against the COVID-19. As Director of ILO Viet Nam, do you have any specific concerns and suggestions?

Let me first pay my high respect to all medical and health workers, officials of Ministry of Health who have been on the front line to protect citizens’ life and health against the COVID-19. We all owe you. I would also like to share my deep appreciation of effective support from the World Health Organization in Viet Nam throughout this crisis.

The COVID-19 crisis highlights the critical importance of the public health system and health workers. Globally there are 136 million workers in human health, and social work activities, including nurses, doctors and other health workers, workers in residential care facilities and social workers, as well as support workers, such as laundry and cleaning staff, who face serious risk of contracting COVID-19 in the workplace. And approximately 70 per cent of jobs in the sector are held by women.

Considering their critically important roles in fighting against the COVID-19, the government and employers should provide personal protection equipment for core health workers and other support, while ensuring adequate working conditions as our fight against COVID-19 will continue.

Who are the most vulnerable groups in Viet Nam’s labour market in this situation?

The most vulnerable groups include workers in informal employment, migrant workers and women. Their needs must be addressed as a matter of priority and urgency.

Athough informality rate has been on decline in Viet Nam, more than 70 per cent of the employed polulation remain in informal employment. The majority of those workers lack the basic protection that formal jobs usually provide, particularly income protection, sick leave and health protection. In this COVID-19 crisis, they may be forced to continue working or are reluctant to self-isolate, thereby putting their own health in jeopardy and risking further contagion. The most impacted are the self-employed, informal workers in the most affected sectors, domestic workers and gig economy workers.

Meanwhile, migrant workers, who account for 13.6 per cent of the total population, often work in the informal economy without employment contracts, with no access to social protection measures. Domestic migrants often work in the sectors most affected by crisis-related job losses

In addition, women are bearing the brunt of this crisis. As I said, the top four sectors at risk identified by the ILO – accommodation and food services, manufacturing, wholesale and retail trade, and real estate and business activities – account for 44.1 per cent of female workers in Viet Nam, versus 30.4 per cent of male workers.

Women are also at the forefront of care. They are also overrepresented among the 2 million unpaid family workers. Most of them are main care-givers of their children and elderly parents. They are overrepresented in the most affected sectors of employment (garment sector, domestic work). So ensuring the gender-approach to policy responses is essential.

In addition, children may also be affected by loss of employment and income reduction of their parents. As the crisis unfolds, school dropouts, malnutrition, exploitation and child labour could increase dramatically leading to long-term and irreversible consequence on human capital development.

As you said, many vulnerable workers have limited access to social protection, including health insurance. What do you think of the response of the Government in relation to health insurance?

Guaranteeing access to affordable health care is critical first and foremost to ensure that lack of coverage does not prevent persons from seeking care, getting tested and accessing necessary treatment. This is an essential part of saving lives and controlling the spread of the epidemic. Financial health protection is also essential to prevent the impoverishment of individuals and households caused by out-of-pocket payments directly related to seeking care. Not only financial but also geographical access of care is essential, particularly for those in rural areas.

Viet Nam’s Health Insurance system already covers 90 per cent of the population and co-payments are limited to a maximum one fifth of total costs incurred. Vulnerable people, children under 6 are exempted from contribution and co-payment.

However, 90 per cent of the population also means that about 10 million people are uncovered. In order to protect all citizens in the country, consideration could be given to temporary granting universal access to health care, regardless of health insurance membership status, with waiver on co-payment for all. It would contribute to encourage access to health care and early detection, hence reducing the potential spread of the virus and aggravated cases caused by delayed treatment.

What is the role of social protection to address the social and economic consequences of COVID-19?

The Government has taken a first set of measure to provide emergency assistance through cash transfers. This is commendable efforts. Social protection systems are indeed an important part of any adequate crisis response, addressing three main dimensions of the pandemic and its economic and social implications:

Social protection helps contain the pandemic and reduce mortality. Social health protection helps to ensure effective access to affordable health care so that infected people are able to receive due treatment. Meanwhile, income security measures, such as sickness benefits, unemployment benefits and other cash transfers for households can maintain some income in cases of sickness or job loss, thereby protecting individuals from the risk of infection and allowing them to self-isolate and quarantine, thus playing a crucial role in curbing the spread of the virus.

Social protection provides income security and prevent poverty. Sickness benefits, unemployment benefits and other cash transfers cushion the adverse economic impacts of the crisis and provide job and income security for those most affected, thereby contributing to increasing their resilience and preventing poverty, unemployment and informality. Effective social health protection also ensures that those infected do not face catastrophic health expenses which pushes them into financial hardship and poverty. Previous crises highlight the need to combine effective health interventions with social protection measures, in any adequate government policy response.

Social protection is an economic and social stabilizer. The supply and demand shock precipitated by the pandemic are likely to have serious economic and social long-term impacts - this calls for swift action and strong economic and social policies. Evidence from previous crises shows that social protection has a larger positive multiplier effect on the economy than other fiscal measures, acting as powerful economic and social stabilizer. It ensures that low-and middle-income households continue to consume, thereby boosting aggregate demand and charting a solid path to recovery.

Do you have any recommendations on an effective policy framework to fight the pandemic?

I am very encouraged to see that Viet Nam has begun to introduce and roll out policy packages to stimulate the economy and support enterprises, jobs and incomes. Yes, there may be rooms for improvement. But I believe that the unprecedented US$2.6 billion support package is broadly in line with what ILO suggests at global level for large scale and integrated policy responses to fight COVID-19: 1) stimulating the economy and employment, 2) supporting enterprises, jobs and incomes, and 3) protecting workers in the workplace. Such policy framework will enhance post COVID-19 recovery by limiting harms to people and minimizing threats to future growth potential.

I want to emphasize three points.

First, under the current situation, enterprises are likely to accelerate layoffs, which have already started. If unchecked, these layoffs will magnify the social crisis and resulting downward spiral. It is critical to focus on maintaining jobs and ensuring safe and healthy workplaces, by directing the Government’s support to businesses that carry out various measures to retain employment and protect workers’ health through healthy work arrangements. This will help to slow down and minimize the shock of employment crisis. In doing so, it is important to have social dialogue between enterprises and workers, and between both of them and the Government for gradual adjustment to jobs, working hours and wage incomes based on mutual understanding. Social dialogue can create trust and confidence in policies and measures taken by the Government and enterprises, minimizing possibility of social instability. This will help the economy bounce back once COVID-19 comes under control. In this regard, Viet Nam already has some good initiatives, such as what have been done by Hai Phong Economic Zone trade unions.

Now I want to come back to the relation between of job retention, safe business and boosting service industry. For instance, rotation of workforce every other day can help to both retain workers and practise social distancing. Or under staggered working time arrangements, some factory workers may start their shift at 7am, others at 11am, and the rest at 3pm. It can ensure social distancing not only at the factory but also in the streets during the commute. It can also generate positive impacts on, for example, service industries, as workers may go to restaurants and grocery stores at different time slots according to their staggered working time arrangements, which ensures increased number of customers and social distancing at those places. It promotes safe business, facilitates job retention and boosts domestic consumption at the same time.

Second, it is important to minimize the impacts of various containment measures on micro enterprises, family business and rural agricultural communities. These are the businesses that sustained Viet Nam during the wars and economic crises in the past. However, the current pandemic and social distancing measures is causing a heavy strain on their capacity to absorb economic and social shocks. When there is an abrupt collapse of global demand for Vietnamese goods and services, or a disruption of global supply chains, millions of micro enterprises, family businesses and rural farming community provide subsistence support. Therefore it is urgent to allow them to play their roles at this critical juncture, with Government’s support.

Third, as I mentioned, social protection should remain a priority of stimulus packages, including the future ones, to reinforce the measures already taken to protect people and their livelihoods.

Now it is time to take a balanced approach to this dual crisis. On public health front, Viet Nam has proven to be one of the best countries in the world. It is time to prove that the nation is equally excellent in addressing economic, social and labour market challenges. I have the confidence that Viet Nam can do it. The international community, including ILO and UN agencies, will provide all available support.