Global, regional and national wage policies - trends and challenges

Opening speech by Ms Sandra Polaski, ILO Deputy Director - General for Policy, at the National Wage Conference organized in Hanoi on 25-26 November 2014

Statement | Hanoi, Viet Nam | 25 November 2014
Madam Pham Thi Hai Chuyen, Minister of Ministry of Labour - Invalids and Social Affairs 
Distinguished Members of the National Wage Council,
Ladies and Gentlemen,

It is my great pleasure to attend the National Wage Conference, which provides an important opportunity to discuss a topic that is high on the agenda here in Viet Nam – and elsewhere in the world. This was the case at the G20 Leaders' Summit that I attended ten days ago in Brisbane, Australia, and very much also in neighbouring Cambodia, which I visited just before coming here to Viet Nam.

Globally, we see a slow-down of wage growth since the global economic and financial crisis. While real wages grew at roughly three per cent annually in the years before the crisis, wage growth has slowed down to less than two per cent since 2008 – and to less than one per cent if we exclude China. So for workers, one lasting aftermath of the crisis is that progress in achieving higher wages and better living standards is now slower than before in much of the world.

Wages, and how they are distributed, have major implications not only for workers but also for how societies grow and evolve. They are an important determinant of whether a society will become more equal—or more unequal. Rising inequality is a major concern in many countries, and rising wage inequality has contributed to this trend. Next week the ILO will launch the ILO Global Wage Report for 2014/15, which will present new research findings on the link between the distribution of wages and overall income inequality. If we want to create shared prosperity, with rising incomes for all, and build societies based on social justice we need to address distributional issues and ensure that “a just share of the fruits of progress” reaches all workers.

It is no coincidence that wages get so much attention, and are often the subject of heated debate. Wages are important for workers, for employers, for governments and for economies as a whole.

For workers, wages are a main source of income – across the world, more than half of all working people now depend on wages for their livelihoods. In most developing Asian countries, including Viet Nam, the share of wage earners in total employment is somewhat lower, given the stage of development and the fact that agriculture and small scale farming is still relatively large. But wage employment is growing rapidly. So the level and purchasing power of wages have strong implications for living standards. Whether wages are sufficient to meet workers’ basic needs will decide not only whether people can feed their family, but also whether they can build a better future for themselves and their children. Unfortunately, when we look across the world, this is not the case for far too many. As of 2013, some 839 million men and women had incomes below the international poverty threshold of PPP$ 2 per day, despite being employed.

Of course, the question of what is sufficient for a decent standard of living needs to be addressed carefully. Here in Viet Nam, there is a wealth of experience in measuring minimum living needs – and different actors have taken slightly different approaches, and arrived at slightly different results. This is not unusual, given that one needs to make decisions on what methodology to use and value judgments along the way. What I find commendable is the openness from all sides to question those decisions and to look for new ways of improving those measurements. During the second day of this conference we will have the benefit of learning from international experience and to look into some of the best practices that have emerged. Some of this might be useful to further improve the measurement of minimum living needs in Viet Nam, and maybe also to find agreement to a common approach that has the support of Government, Trade Unions and Employers alike.

For Employers, wages have major implications for the cost of running an enterprise. Rising wage levels mean that they cannot rest on yesterday’s achievements if they want to stay competitive. When we asked employers from across the ASEAN region about their strategies to increase their competitiveness, a vast majority saw investment in better skills and adopting new technologies as their preferred options. Only very few thought that reducing wages is a feasible way forward. On the second day of the conference, we will have the chance to listen to enterprise perspectives on wages, and to learn about new research findings on how companies cope with labour cost increases. We will also find out more about the importance of data collected by the General Statistics Office (GSO) for such research and for providing a foundation for making decisions on wages based on solid empirical evidence.

To succeed in an environment of rising wages, enterprises also need the support of Government – in the form of high-quality education and vocational training for the workforce, through public investments in infrastructure, through sound regulation of energy prices and other measures that support innovation, technological upgrading and enterprise competitiveness.

So one challenge for Governments is to create the conditions that make enterprises successful and so to lay the foundation for sustainable wage growth in the future. From the perspective of the overall economy, wages are an important contributor to household income and therefore domestic consumption. While they are a cost to enterprises, money in the pockets of workers is at the same time a critical source of domestic demand for the firms’ products and services. Wages therefore are also a key driver of investment, industrialization, diversification, and overall growth and development. This helps to lessen the dependence on exports, which can be very volatile – a lesson that many export-oriented countries have learned during the global economic and financial crises. It is a natural part of the development process to move from reliance on exports to more reliance on domestic demand as wages and incomes increase.

The ILO emphasizes the importance of sound wage-setting institutions, and the contribution they make to economic success and more equitable societies. One feature of successful wage-setting institutions is that they are not only the domain of governments, but should also involve workers and employers, who have a direct stake in the outcome. With the formation of the National Wage Council in 2013, Viet Nam has made an important step to give trade unions and employers’ federations a direct stake in minimum wage setting.

Making a tripartite institution such as the National Wage Council successful in practice requires all parties to engage in a spirit of constructive negotiation – not winning an argument at all cost, but to spend as much time and energy listening to the concerns of the other side as defending one’s own arguments. A good starting point for this is the use of reliable data in line with an agreed set of criteria that reflects the needs of workers and their families as well as economic factors.

So let me use this opportunity to congratulate all stakeholders for the progress made to date, and in particular Madam Pham Thi Hai Chuyen, Minister of MoLISA, for her leadership.

I personally believe that Viet Nam now has the institutions that pave the way towards ratification of the ILO’s Minimum Wage Fixing Convention, 1970 (No. 131). I am therefore pleased that the Prime Minister has agreed with the Minister’s proposal to include this important Convention in the programme of ratification for the period from 2016-2020. Ratification would send a strong signal that Viet Nam is committed to the principles of the Convention, and its primary objective—which is to provide “protection for wage earners against unduly low wages”.

Being clear about the objective of the convention also helps to be aware of its limitations. Minimum wages are meant to raise the wages of low-paid workers to cover at least their minimum living needs. If we understand the function of minimum wage as providing protection to the most vulnerable workers against exploitation, it also becomes clear that minimum wages cannot be the only tool when it comes to setting wages.

Later today, we will discuss how minimum wage setting and collective bargaining complement each other in a market economy. We will look into the challenges faced by workers and employers when they bargain over wages and working conditions at enterprise and sectoral level, and also some of the successes that have been achieved here in Viet Nam. Collective bargaining gives workers and employers a mechanism to resolve disputes constructively, and to find win-win solutions that maximize benefits for both parties. It also gives them flexibility to adapt to changing circumstances, so it is not surprising that countries with strong collective bargaining and social dialogue institutions have found creative solutions to deal with the impact of the economic and financial crisis.

To function effectively, collective bargaining must be grounded in a legal and institutional framework that encourages and facilitates the bargaining process at all levels. These protections are found in ILO’s Right to Organise and Collec¬tive Bargaining Convention, 1949 (No. 98). Ultimately, sound collective bargaining must be based on the freedom of workers and employers to join and form representative organizations of their own choice, as laid out in the Freedom of Association and Protection of the Right to Organise Conven-tion, 1948 (No. 87). These two fundamental labour conventions are now the global bench-mark and have been ratified by over 150 ILO member States. The ILO would welcome and is to ready support Vietnam in the ratification of these key instruments.

Strong wage setting institutions—including both minimum wages and collective bargaining—are also needed to maximize the benefits from regional and global economic integration. This is one of the key findings of a recent joint report by the ILO and the Asian Development Bank (ADB) on the “ASEAN Community 2015: Managing integration for better jobs and shared prosperity”. Closer economic integration holds the promise of increasing labour productivity through specialization and efficiency improvements. Under the ASEAN Economic Community, Viet Nam shows one of the largest potential gains in terms of productivity growth by 2025. But good economic performance is not a guarantee for shared prosperity and equitable devel¬opment, so wage-setting institutions have the crucial role to help link wage increases to productivity increases.

There is no doubt that with greater global integration, Vietnamese enterprises will have to increase their productivity in order to be successful. What is required to increase productivity is often misunderstood. A simplistic idea is that productivity is about how hard people work. That is not the case. For example, many farmers work harder than people who are more productive. But they have low productivity because they do not have the tools, equipment, inputs or techniques to be more productive. This illustrates what is required to increase productivity, which is to do things more efficiently, and that entails investment in more advanced equipment and better management of work processes and flows at the enterprise level and better infrastructure at the economy-wide level. It also requires constant upgrading in the quality of basic education as well as vocational training and on-the-job training. This is also the path to move the economy from low-value added activities into sectors where the value added is higher.

And minimum wages also have a role to play here. The latest research on the link between wages and productivity finds that increases in minimum wages lead employers to find ways to raise productivity through investments in technology, more efficient work processes and so on. This is good for the competitiveness of firms and also for the broader economy.

Viet Nam has a lot working in its favour. It has a youthful labour force with sound literacy and basic education. It has a growing number of dynamic enterprises. But to realize the full potential of productivity growth in the years to come, Viet Nam needs to lift some constraints to growth through infrastructure development, technology improvement and strengthening vocational education and training.

This is no small task, and it will require close collaboration among different ministries, the business sector and the unions. Boosting long-term labour productivity growth is critical to create the conditions for further improvements in wages and living standards in Viet Nam.

Over the next two days, the Conference will give us the opportunity to talk about these issues in depth and in very practical ways. I look forward to a productive discussion and useful exchange of knowledge that can contribute to these goals.

Thank you.