Hanoi (VNS/VNA) - While labour productivity in Vietnam remainslow compared with neighbouring countries, the drastically disproportionateincrease of minimum wage and wages might harm the competitiveness of businessesand the development of the country.

The minimum wage grew at double-digit annual rates from 2007-2015, outpacingthat of per-capita GDP and the consumer price index.

These findings were revealed in a report by the Vietnam Institute for Economicand Policy Research (VEPR) and Japanese economic experts which was released onSeptember 13 in Hanoi at the workshop “Labour productivity and wage growth in Vietnam.”

Futoshi Yamauchi, senior economist from the World Bank, and member of theresearch team, said Vietnam’s minimum wage increases can have more negativeeffects than positive, citing the finding which showed an increase of 100 percentwould cause profits over revenue of businesses to fall 3.25 percent.

Nguyen Duc Thanh, head of VEPR, expressed concerns over such differences.

“Continuously increasing minimum wage independent of the country’s labourproductivity is contrary to other countries in the region. We, researchers,have to ask whether increasing minimum wage is just a way to ‘please’ employeesand the majority of the people, regardless of the consequences it might bringto the overall economy?,” Thanh said.

He explained that the increase of minimum wage coupled with stagnant growth ofproductivity “erodes” businesses’ ability to accumulate capital and reducesinvestors’ desire to do business in the country, as well as their profits – acombination that undercuts the economy’s competitiveness.

Thanh’s calling ensuring minimum wage a “failed policy” was echoed by themajority of the experts at the workshop, who suggested the Government utiliseother complimentary forms of social protection rather than relying on minimumwage. He also recommended switching to hourly minimum wage from the currentmonthly policy so as to better ensure the rights of more workers as well asafford more flexibility in recruitment and work arrangements for employers.

Truong Dinh Tuyen, former trade minister, explained that as a social protectiontool, minimum wage policy can be considered “ineffective” as it fails to reach50 percent of the labour force as it only covers contracted or salariedworkers, while uncontracted workers are left out.

Some urged caution in branding the minimum wage policy a ‘failure’ as it’s apolitically and socially sensitive issue, however, experts agreed that thefocus on minimum wage at the central level should be shifted to finding ways toboost Vietnamese productivity, which can eventually be the determining factorfor an employee’s wage.

Professor Kenichi Ohno, from Japan’s National Graduate Institute for PolicyStudies, said he hasn’t seen “any serious action” from the Vietnamesegovernment regarding the improvement of labour productivity. He added that inthe future, Japan and Vietnam will have more concrete cooperation efforts intackling this situation, in terms of changing the mindset as well as moreresearch and resources on the development of successful foreignproductivity-boosting models.

The minimum wage in Vietnam varies across the four regions, based on cost ofliving and location.

Region 1 covers urban Hanoi and HCM City, Region 2 covers rural Hanoi and HCMCity along with urban areas of Can Tho, Da Nang and Hai Phong cities, Region 3applies to provincial cities and the districts of Bac Ninh. Bac Giang, Hai Duongand Vinh Phuc provinces, and Region 4 takes care of the remaining localities.-VNA