Vietnam’s wage growth higher than average: ILO

“Vietnam has done well in terms of wage growth compared to the world as new ILO figures show a continuing slowdown in global wages, particularly in developed countries,” according to the ILO’s Global Wages Report 2012-2013.

In contrast to the global situation, in Vietnam, the average nominal wage increased by 26.8 percent per year in the period 2006-2010.

Even when taking into account inflation, which remained high, the real wage (reflecting adjustment for changes in consumer prices) increased by 12.6 percent on a yearly basis, ILO Director-General Guy Ryder said.

Globally, wage growth remains far below pre-crisis levels around the world. Globally monthly wages grew by 1.2 percent in 2011, down from 3 percent in 2007 and 2.1 percent in 2010.

“The country, however, still needs to address many challenges, including the informal economy, low productivity and widening gender pay gap,” said ILO.

Wage vs productivity

While the report shows global trend of wages has grown at a slower pace than labor productivity, the situation in Vietnam contrasts sharply, according to the ILO’s Global Wages Report 2012-2013.

In developed economies, labor productivity has increased more than twice as much as wages since 1999. Even in China – a country where wages roughly tripled over the last decade – the labor share went down as Gross Domestic Products (GDP) increased at a faster rate than the total wage bill.

The global trend has resulted in a change in the distribution of income, meaning that workers are benefiting less from the fruits of their work while the owners of capital are benefiting more, said the report.

However, in contrast to the global situation, the real and nominal wage growth rates in Vietnam have been at least three times higher than the growth rate of labor productivity.

One of the reasons is that like in many other developing countries, the average wage refers to the earnings of paid employees who represent only 33.8 percent of the total labor force in Vietnam, while labor productivity measures GDP of all employed people, including the self-employed.

According to ILO Vietnam Country Director Gyorgy Sziraczki, Vietnam has some other challenges ahead to make the wage growth equally benefit the country.

“The policy efforts should focus on the nearly 60 percent of the labor force that remain in the informal economy with low productivity, little protection and low income,” he said.

He also warned about the widening gender pay gap in Vietnam.

While gender pay gap has declined in the crisis years in most countries in the world, according to the ILO report, Vietnam is among a few nations that have seen a widening gap – nearly 2 percent increase in 2008-11 compared to 1999-2007.

“Unless women are paid equally for their no less important contributions in the world of work, the country cannot tap the huge potentials of about half of their labor force,” said Sziraczki.

A new minimum wage band for workers, which will be up to VND300,000 (US$14) more than the current rate per month, will be applied from January 2013.

The country now has different wage brackets covering four regional zones, ranked according to the level of socio-economic development.

Zone One covers urban Hanoi and HCM City. Zone Two covers rural Hanoi and HCM City along with urban Can Tho, Da Nang and Hai Phong. Zone Three covers provincial cities and the districts of Bac Ninh, Bac Giang, Hai Duong, and Vinh Phuc. Zone Four covers the remaining localities.

The move will set the monthly minimum wage at VND2.35 million ($111) for Zone 1, VND2.1 million ($100) for Zone 2, VND1.8 million ($86) for Zone 3 and VND1.65 million ($78.5) for Zone 4.

The wage is applicable to laborers working for enterprises, co-operatives, farms, households, individuals, and organizations.