The impacts of minimum wage increases on employment and labour productivity in Viet Nam

This study has several objectives. Firstly, it estimates the impact of minimum wage increases on the labour market in Viet Nam. One of the main purposes of minimum wage is to protect workers at the bottom part of the wage distribution and reduce wage inequality. Thus, the second objective of this study is to examine whether minimum wage increases can increase wages of low-wage workers. The third objective is to investigate whether the impact of minimum wage increases changes over time. Our estimates from the recent Labour Force Surveys show that compared to the median as well as mean wages, minimum wages increased at a higher rate during the 2012-16 period but at a slower rate in the following period. The ratio of the average minimum wage to the median wage was equal to 49.1 per cent in 2012 and increased to the peak at 64.2 per cent in 2016, then decreased to 58.3 per cent in 2020. Thus, we aim to test whether minimum wage increases had a significant influence on overall wage growth during the 2012-16 period; however, the strength of this influence has changed, and that this change is towards less influence of minimum wage on the prevailing wage growth. Our estimates are disaggregated for different employment sectors and population subgroups. Findings from this study could give new insights to the National Wage Council for minimum wage policy – if minimum wage increases cannot improve the mean wages, it could decide to go for higher minimum wage increases – however, if minimum wage increases harm labour market participation, increasing minimum wage should be taken with caution.

This report is structured in six sections. Section 2 introduces the data sets used in this study. Section 3 presents descriptive statistics of employment and minimum wages in Viet Nam. Sections 4 and 5 present the estimation method and empirical results of the impact of minimum wages, respectively. Finally, section 6 concludes.