People shop in a supermarket in Hanoi. Wage hikes are considered an urgent issue as Vietnam is facing rising inflation pressure. (Photo: VNA) On October 20, Minister of Finance Ho Duc Phoc presented the Government'splan to allocate 12.5 trillion VND (509 million USD) for wage reforms,including a 20.8% increase in the basic wage of civil servants from 1.49million (60 USD) to 1.8 million VND (73.30 USD) from July 1, 2023.
If approved by the National Assembly, this is the second basesalary hike since July 1, 2019, after a three-year delay due to theCOVID-19 pandemic.
The base salary in Vietnam is the reference for calculating thetotal salary for civil servants by multiplying it with its correspondingcoefficient.
The wage hike is considered an urgent issue as Vietnam is facingrising inflation pressure due to increases in fuel prices and other commoditiesas a result of the Russia-Ukraine war.
At the Q&A session of the 15th National Assembly meeting onNovember 5, Minister of Home Affairs Pham Thi Thanh Tra agreed it wasreasonable to increase the basic wage as it would help create new motivationamong civil servants and public employees and keep them in the state sectorgiven the fact that nearly 40,000 civil servants left their jobs, primarily ineducation and healthcare sectors, during January 1, 2020 to June 30, 2022.
Many National Assembly (NA) deputies also called for a wage hikefrom January 1, 2023, six months ahead of the Government's proposed schedule,to compensate for the price surges which have increased 4% annually.
"This creates a shift of human resources from the public tothe private sector," said Huynh Thanh Phuong, a delegate from Tay Ninh province.
Earlier on July 1 this year, the minimum wages of employees whowork under labour contracts increased by 6%. The increase varies from 140 USD to202 USD depending on the living expenses in their particular region.
Suitable time for wage hike
Not only in Vietnam, workers worldwide are asking for higher wagesamid steep inflationary pressure. In some EU countries, there have been strikesand protests due to high energy prices and escalating costs of living.
But while inflation has indeed led to depressed real wages and asubstantial squeeze on living standards, there have also been arguments thatincreases in wages could lead to further inflation – a so-called“wage-inflation spiral”.
The idea suggests higher price inflation makes workers demandhigher wages but higher costs will then lead firms to raise prices to protecttheir profit margins.
This psychology is true in Vietnam when information on wage hikesoften goes along with the worry that prices will go up higher than salary andeven before the wage hike takes effect.
Perhaps because of this phenomenon, the Government proposed toincrease the base salary for civil servants and public employees from July 1instead of January 1, 2023.
The Ministry of Finance said in the face of high inflation risk,the reform of salary policy should be carried out cautiously and in harmonywith the objectives of socio-economic management in general.
January is close to the festive season with the New Year and LunarNew Year, so the demand for shopping and buying goods and servicesincreases sharply. If the wage increase is implemented at this time,"it will put more pressure on price management because the psychology ofincreasing wages is accompanied by price surges, making it difficult to controlinflation," the ministry said.
Thus, the Government proposed not to implement Resolution 27of the National Assembly on the reform of salary policy for civil servants, publicemployees, the armed forces and workers of enterprises in 2023. Instead, theGovernment suggested increasing the base salary for civil servants and publicemployees by 20.8% to 1.8 million VND per month from July 1, 2023.
The postponement of wage reform under Resolution 27 after 2023,according to the ministry, is also due to "the global and domestic contextbeing under great inflationary pressure".
In the 2023 state budget estimate, the Government plans to spendabout 60 trillion VND for salary hikes. Funding is expected to be sourcedfrom increasing budget revenue and annual expenditure saving.
However, according to analysts, the wage hike is only meaningfulwhen the Government takes strong measures to control inflation to avoid asituation in which people receive one more VND but have to spend twobecause of inflation.
Vietnam among top countries with real wage hike
As Vietnam’s economy continues to grow despite the pandemic,rising wages will be an unavoidable feature of doing business in the country.
According to the annual Salary Trends Report by datacompany ECA International, Vietnam is forecast to see the second highestgrowth in real wage increase worldwide at 4% in 2023 in comparison with 2022,trailing behind India at 4.6%.
Asia Pacific is only the region predicted to see the average realsalary increase — which is nominal wage growth minus the rate of inflation— by 1.3%. That’s compared to other regions which will see drops inaverage real salary of 1.5% for Europe, 0.5% for North and South America, and0.1% for Africa and the Middle East.
Eight out of the top 10 countries with the highest real salaryincreases globally are from Asia-Pacific this year, ECA internationaladded.
Within Southeast Asia, Vietnam, Malaysia and Thailand are expectedto see higher rates of real salary growth in 2023 as the post-pandemiceconomic recovery continues accompanied by falling inflation.
“Overall, workers in many ASEAN locations will see real salarygrowth in both 2022 and 2023,” said Lee Quane, ECA International’s regionaldirector. “Workers based in Vietnam benefitted from having the secondhighest rate of real salary growth this year in the region and are expected todo so again in 2023.”
According to the Government's report at the 4th session of the15th National Assembly, Vietnam’s GDP is expected to grow 8 % in 2022,surpassing the Government’s target of 6-6.5% for the whole year, and inflationis kept under 4%./.
VNA
