Vietnam's Labor Problems Amidst its High Inflation

Inflation has continued to soar in Vietnam during the last year. At the beginning of March 2011, petrol prices jumped more than 17% and power prices rose more than 15% on February 24, 2011.  The consumer price index rose at an annual rate of 12.24 % in February, the highest rate of increase in the past two years. The local currency, the dong, was also recently devalued and was under continued high depreciation pressures, reported Vietnam newspapers.

Vietnam's minimum wage

Vietnam adjusts its minimum wage every year. Currently, minimum pay ranges from VND830,000 to VND1.55 million, depending on the location of the employee. Vietnam, in 2011, is expected to lead the minimum wage increase among the neighboring countries at an 11.5% rise. (approximately 7% for Indonesia, Philippines, Thailand and 5.8% for Malaysia. For more information, please read our "Asia Salary Rises").  These increases in VIetnam are substantial but are less than those in China where increases have been even higher this year.

Despite significant rises in the cost of living, the taxable income threshold has been left unchanged at VND4 million (US$192) per month. Tran Xoa, director of HCMC-based Minh Dang Quang Law Company, said that the VND500,000 monthly salary cap for dependents should be raised to VND1.5 million. 

Post-Tet labour shortage

Many of Vietnamese workers have not returned after the year's biggest holiday, Tet or Lunar New Year. Many labor-intensive factories are facing the endemic problem of a post-Tet labor shortage. Even though this has happened in the past several years,  this year the companies, especially labor intensive companies based in export processing zones (EPZs) and industrial parks (IPs), that have the largest number of workers quitting after Tet,  are experiencing this challenge.  This is occurring even thought the company has given their workers better living and working conditions, reported Tuoi Tre news.

Statistics cited by a recent report in the Nguoi Lao Dong (The Labourer) newspaper said that companies based in HCM City's EPZs and IPs need to recruit around 10,000 workers after the holiday, mostly in electronics, mechanics, garment and food processing sectors. The demand for manual labor accounts for 60% of the post-festival recruitment and the rest are workers with high professional skills, the report said. To make up for the shortage of workers after Tet, many companies had made plans to begin recruiting people immediately after the festival and some began doing so even before the holiday. Many companies contacted provincial authorities and agencies directly in the hope of recruiting workers, especially in the central region that is the largest provider of workers to HCM City.

The main reason for the lack of desire to return to work is that most of the workers are looking for jobs in or near their home towns.   High inflation in recent years has resulted in an increase in the cost of living in big cities, which makes it all the more difficult for workers whose wages have not improved significantly; therefore, the workers prefer to work in their home provinces or nearby locations, where they might earn less but do not have to deal with high living costs. Also, the last few years have seen a large number of industrial parks established in agricultural provinces, creating jobs for locals nearer to their homes and further reinforcing this change.

Personal Income Tax Issue

Recently, Vietnam economists have urged the government to amend the Personal Income Tax Law as soon as possible, reported Thanh Nian news. They believe that a new taxable income threshold should be calculated against the minimum wage so that tax levels remain a fair and accurate reflection of national earnings. However, in the current situation, a tax exemption idea is also being suggested to the government.  Income earners are facing financial difficulties as prices are soaring and it would help ease their burdens. Dr. Nguyen Van Thuan, Dean of the Faculty of Accounting, Finance and Banking at Ho Chi Minh City Open University, said that if the government is still worried that another such temporary tax break would affect revenues for the state budget, it could opt to reduce taxes by 50%


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