Not enough: minimum wage increase cannot meet real needs

This grim assessment was made by experts at a Thursday conference on minimum wage in Hanoi.

Vu Minh Tien, head of the Institute for Workers and Trade Unions (IWTU) under the Vietnam General Confederation of Labor, said a survey of over 2,000 workers in March revealed that around 35.5 percent of them had to borrow money 3-4 times a month to get by.

Over the past five years, several surveys have showed that over 30 percent of workers are constantly destitute and without savings, constantly having to borrow money or pawn their possessions to pay tuition, rent and hospital fees.

“I’ve never met any worker who borrows money to invest in real estate. They borrow to deal with their immediate needs,” said Tien, adding that workers who don’t work overtime will certainly be in debt if an emergency arose; for example if someone fell sick.

Tien said the minimum wage would go up 6 percent starting July, but rising fuel prices were driving inflation, making workers’ lives even more difficult. The average monthly income of VND5-7 million ($215.24-301.33) also includes salaries of managers, so the actual income of a worker who has just joined the workforce would be much lower.

During negotiations, labor unions should try to increase workers’ basic wages, and businesses should also adjust benefits, such as financial support for fuel and meals, when prices increase, Tien said.

Some businesses choose to increase workers’ basic wages but cut their benefits. Such a solution would not only discourage workers from staying, but also harm productivity in the long run. That is something that labor unions should be aware of during negotiations, he added.

Ha Thi Phuong Anh, head of the labor union of the Plummy company in Hanoi, said the firm has over 700 workers, 93 percent of whom are women. The text company has a regional minimum wage of VND4.68 million ($201.46), the highest among all regions. The average monthly salary of workers in the company is around VND5.68 million, not including overtime pay and benefits.

A minimum wage of VND4.68 million might have worked two years ago, but not today, Anh said. As fuel prices increase, driving inflation, workers could only get by if they save up as much as they possibly can.

“50 percent of workers would definitely have to borrow money at the end of the month if their children are sick or they have to go to the hospital for some reason,” Anh said.

In the suburbs, workers find it difficult to send their children to public schools as they typically close at 5 p.m. while the parents often work overtime until 6:30 p.m. Some workers cannot rely on grandparents to take care of the kids, so they have no choice but to send them to private schools, with minimum tuition fees at around VND1.5 million a month per child.

This is a huge drain on their resources. For instance, a family migrating from rural areas would have an income of around VND12 million a month. If they have two children, one in kindergarten and the other in primary school, it would cost the parents around VND6-7 million a month. That means they will only have VND5-6 million left to spend on food and rent, not to mention other fees, Anh noted.

Therefore, given the typical situations they face, factory workers have no other choice but to work overtime and find alternative sources of income to increase their monthly income. About 6 percent of workers at Plummy have to pay rent, so the company has already created a list of workers to provide rental support, and the measure awaits approval.

“As both a member of the labor union and a worker, we hope authorities will continue to roll out policies to support workers, besides increasing the minimum wage,” she said.

Nguyen Lan Huong, former head of the Institute of Labor Science and Social Affairs, said Vietnam’s approach towards setting a minimum wage is largely dependent on labor contracts. But only around 60 percent of workers have contracts, and the policy that requires workers to have a contract lasting for at least a month to be able to contribute to social insurance excludes many workers from a social safety net.

Discussions and negotiations regarding wages often center around the quantum of increase, but what actually matters is how many people would benefit from the rise in minimum wages, and how worker groups would be paid.

Huong said there needs to be more large-scale surveys to figure all this out, especially for those who work menial jobs or jobs that pay by the hour. She added that a rise in minimum wage has never been able to accord the protection and support that workers actually need.

On the other hand, adjustments to the minimum wage can be costly to businesses. As such, the government should introduce measures to support employers, too, ensuring both productivity and stability.

Huong said the introduction of a minimum hourly wage at VND15,600-22,500 starting July is not only too unambitious, but may also lead to unintended consequences, such as businesses switching from applying a minimum monthly wage to a minimum hourly wage so they would not have to pay for overtime or social insurance. Therefore, authorities should think of other, better targeted, more effective policy interventions.