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Friday, May 14, 2021

Higher labor productivity: pay rise

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Business owners should be authorized to decide whether minimum wages are raised or not in the year that follows because it is only they who are able to determine whether labor productivity and the income structure from capital and labor have improved or not during that year

As a yearly routine, during this time around, the basic salary in Vietnam will be raised as per conclusions arrived at during last year’s discussions. Despite such conclusions, however, the relevant Vietnamese authorities have ruled that minimum wages remain the same for State employees, the armed forces and retirees as of the first of July.

Also, the “stable period of the State budget during 2017-2020” will be extended to 2021. Next year, the distribution of the State budget for 2022-2025 will be promulgated.

This decision, made by the Party’s Politburo, is said to be justifiable. According to the Ministry of Finance’s estimate of budget spending in the first quarter of this year, current spending accounted for 72% of the total State budget, spending for development investment 18% and that for debt servicing 10%. Although payment for debt principle, about 17%, is left out of the budget balance sheet, it should be taken into consideration, too.

During the first five months of 2020, domestic collection reached 38% of the year’s target, a drop of 5.9% year-on-year; collection from crude oil reached 56.4% of the target, minus 17.8%; and collection from import-export activities attained 36.7%, minus 23.4%.

Cumulatively, the total State budget collection during the first five months of this year was estimated at VND577 trillion, or 38.2% of the plan, a plunge of 9.2% over the year-earlier period. This indicates that the State budget collection also runs into trouble when the economy turns sour due to Covide-19.

According to data obtained from the General Statistics Office and the White Book on Vietnamese Enterprises 2020, in 2018, when Vietnam posted an economic growth rate of 7.08%, the national economy’s labor productivity was estimated at VND102.2 million per person per year in 2018 current prices, a jump of 6% year-on-year.

The labor productivity of the corporate sector in 2018 reached VND166.2 million per person per year, which was 63% higher than the country’s average. However, that rate was only 0.6% higher than itself in 2017.

Notably, the labor productivity of the State sector was VND310 million per person in 2017 and VND320 million in 2018, 3.2% higher than the year-ago period. Nonetheless, if price adjustment was taken into consideration, the labor productivity in 2018 of the State sector in comparable prices is minus 0.4% versus 2017.

The growth of the labor productivity of the private business sector in 2018 over 2017 was the highest among the national economy, at 7.4% in current prices and 3.8% in comparable prices.

However, it should be noted that calculations of enterprise data show that the elasticity coefficient of labor of the private business sector during 2011-2018 was about 0.73 and the elasticity coefficient of capital was 0.27, meaning that the added value of this economic sector increased mainly due to the capital increase rate which during 2011-2018 averaged 13% a year and 27.2% in 2018 over 2017 in current prices. The private business sector is no exception as other sectors in Vietnam are also capital-intensive.

Business owners should be authorized to decide whether minimum wages are raised or not in the year that follows because it is only they who are able to determine whether labor productivity and the income structure from capital and labor have improved or not during a year.

By Bui Trinh

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