Economic development in Vietnam is still mainly driven by labour-intensive industries. But as the world increasingly moves towards Industry 4.0, the government has been finding that, in order to remain competitive, it needs to introduce significant reforms across all areas of the economy to boost worker productivity, skills and quality.
Labour productivity
Since 2008, staff productivity in Vietnam has increased by 22.5%. In accordance with 2017 prices, productivity rates are estimated to stand at VND 93.2 million (US$4,159) per worker, an increase of VND 10 million compared to 2016.
But productivity has not risen relative to the country’s economic growth. In accordance with 2010 prices, average annual productivity growth rates were 4.7% between 2011 and 2017, while increases in investment capital was nearly double that at 9%. Over the same period, the economy grew from US$105 billion to US$220 billion, which shows its dependence on other non-labour-related factors too.
Wages v productivity
Wages have been increasing more quickly than productivity levels. From 2004 to 2015, the average wage rose by 6.67%, while labour productivity grew by only 4.96%.
In comparative terms, wage growth has been most significant among firms undertaking foreign direct investment (FDI), while it has stayed at almost the same levels for private firms. In the case of state-owned enterprises, wage growth remained below productivity growth rates.
Industries with slow productivity growth, such as mining, post and telecommunications and transportation, have seen staff wages grow more quickly than productivity. Wage growth has been much slower in the utility sector, while manufacturing, trade, and construction have stayed at almost the same levels.
Impact of wages growth outpacing productivity
If wage growth continues to outpace productivity, firms are likely to experience lower levels of profitability, which would compel them to reduce hiring or move their businesses to other, more competitive countries. This means that if Vietnam wants to remain competitive, wage growth needs to be on a par with productivity.
Historically, minimum wage increases have led to rises in average wage levels, lower profits and lower employment levels, especially for FDI and private firms. Labour-intensive sectors traditionally undertake more automation, while capital-intensive sectors cut investments in machinery.
Industry sectors
From 2008 to 2016, sectors with the highest levels of labour productivity were mining, production, electricity, gas and water supply, finance, insurance, technology and real estate. Areas with the lowest levels included processing and manufacturing, agriculture, forestry, and fisheries.
Average salaries
According to Vietnam’s General Statistics Office, the average monthly salary in 2017 was VND 6.6 million (US$290), up 9.3% compared with 2016, and higher than the growth rates for regional minimum wages at 7.3%.
In 2017, monthly average salaries for workers in FDI and private firms grew by 13.5% and 3.3% respectively to VND 6.7 million (US$293) and VND 5.6 million (US$246) respectively compared with 2016.
Cities with the highest average salaries
According to a study by recruitment consultancy VietnamWorks, these are the highest average salaries in Vietnam:
|
Cities/Provinces |
Average monthly salary (US$) |
|
Ho Chi Minh City |
456 |
|
Da Nang |
452 |
|
Binh Duong |
444 |
|
Bac Ninh |
421 |
|
Hanoi |
407 |
Labor supply
The number of labourers employed across the whole of Vietnam increased from 53.3 million in 2016 to 53.7 million in 2017. The number of employed labourers in agriculture, forestry and fisheries fell from 22.3 million in 2016 to 21.6 million in 2017, while industry and construction saw figures rise from 13.2 million in 2016 to 13.8 million the following year. The services sector also witnessed growth employment-wise from 17.8 million in 2016 to 18.3 million in 2017.
Employees between the ages of 15 and 39 years now account for nearly half of the entire Vietnamese workforce. The number of skilled employees of working age in 2017 was estimated at 21.5% of the total compared with 20.6% in 2016.
Around 32% of all employed labourers work in urban areas, while the rest were employed in rural areas. Male employees accounted for slightly more than half of the Vietnamese workforce.
In 2017, the number of unemployed of working age stood at 2.24% of the total workforce, with urban and rural rates coming in at 3.18% and 1.78% respectively. Underemployment of working age individuals stood at 1.63%, with urban and rural areas accounting for 0.85% and 2.07% respectively.
Labour force distribution
According to the government’s labour force survey for the fourth quarter of 2017, 67.8% of the workforce live in the rural areas. The Red River Delta, North Central and South Central Coast employ the largest share of the labour force at 21.7% and 21.6% respectively. The Mekong River Delta and Southeast were next at 18.9% and 17.1% respectively.
Average national labour force participation levels are 76.9%. The highest rates of employment are in the Northern Midlands and Mountains and the Central Highlands at 84.9% and 83.3% respectively, while the lowest are in the Red River Delta and Southeast.
Sector-wise, the majority of the workforce is employed in agriculture, forestry and fisheries in the Northern Midlands and Mountains, Central Highlands, and the Mekong River Delta. The majority of workers in the industry and construction sector live in the Southeast (Ho Chi Minh City) and the Red River Delta (Hanoi). Ho Chi Minh City, Hanoi and Mekong River Delta have the highest rates of employment for the service sector.
Challenges
The major challenges experienced by Vietnam’s labour market include a lack of skilled workers, the impact of Industry 4.0 and the need for labour reforms as a result of upcoming free trade agreements.
- Lack of skilled labour
Many FDI firms continue to struggle when trying to hire skilled labour in Vietnam, with about 40% finding the process difficult. According to the 2018 Global Talent Competitiveness Index, which assesses countries in terms of their ability to attract, develop, and retain talent, Vietnam ranks 87th among 119 countries. Major challenges include a lack of technology infrastructure, research and development spending and vocational and technical skills.
The problem is that this lack of skilled labour is likely to slow down the country’s desired economic transition from being reliant on labour-intensive industries to producing high-tech goods, which could reduce its competitiveness.
As a result, the government has taken steps to increase vocational and technical training in order to meet labour market requirements. In March 2018, it introduced Decree No. 49/2018/ND-CP to provide for the accreditation of vocational education.
As of February 2018, more than 1,900 vocational training centres had been set up across Vietnam, including 395 colleges and 545 vocational schools offering courses in tourism, beauty services, IT, construction, fashion, garment and textiles, pharmaceuticals, precision mechanics and hotel management. The government aims to provide vocational training to 2.2 million people during 2018.
- The Industry 4.0 effect
Global businesses are moving swiftly towards Industry 4.0 and if the Vietnamese government does not take steps to enhance the workforce, there will be a significant impact on the economy. For example, according to the International Labor Organization (ILO), 86% of textile and footwear industry workers in Vietnam are at risk of losing their jobs to technology. The highest levels of unemployment will be seen among young people just entering the market.
Therefore, the government has understood the need to introduce reforms to education and industrial training in order to bring it more in line with current market demands. The World Economic Forum’s Readiness for the Future of Production Report 2018 counted Vietnam among those that are currently unready for Industry 4.0. Among 100 countries, it ranked 90th in terms of technology and innovation and 70th in terms of human capital.
- Foreign trade agreements
Once the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and EU-Vietnam Free Trade Agreement come into effect, the country’s employment costs are predicted to rise. While these agreements improve market access for Vietnamese exporters, the government will need to focus on labour reform, developing technical skills and improving corporate governance to fully realise their benefits.
Labour rights are among the key provisions in both of the forthcoming agreements. They require members to adopt and maintain the rights as set out in the 1998 ILO Declaration within their laws, institutions, and practices. Although Vietnam has taken some steps to meet these requirements through institutional and legal reform, more needs to done in enforcement terms.
This article was first published on Vietnam Briefing.
By Koushan Das, editor.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
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Economic development in Vietnam is still mainly driven by labour-intensive industries. But as the world increasingly moves towards Industry 4.0, the government has been finding that, in order to remain competitive, it needs to introduce significant reforms across all areas of the economy to boost worker productivity, skills and quality.
Labour productivity
Since 2008, staff productivity in Vietnam has increased by 22.5%. In accordance with 2017 prices, productivity rates are estimated to stand at VND 93.2 million (US$4,159) per worker, an increase of VND 10 million compared to 2016.
But productivity has not risen relative to the country’s economic growth. In accordance with 2010 prices, average annual productivity growth rates were 4.7% between 2011 and 2017, while increases in investment capital was nearly double that at 9%. Over the same period, the economy grew from US$105 billion to US$220 billion, which shows its dependence on other non-labour-related factors too.
Wages v productivity
Wages have been increasing more quickly than productivity levels. From 2004 to 2015, the average wage rose by 6.67%, while labour productivity grew by only 4.96%.
In comparative terms, wage growth has been most significant among firms undertaking foreign direct investment (FDI), while it has stayed at almost the same levels for private firms. In the case of state-owned enterprises, wage growth remained below productivity growth rates.
Industries with slow productivity growth, such as mining, post and telecommunications and transportation, have seen staff wages grow more quickly than productivity. Wage growth has been much slower in the utility sector, while manufacturing, trade, and construction have stayed at almost the same levels.
Impact of wages growth outpacing productivity
If wage growth continues to outpace productivity, firms are likely to experience lower levels of profitability, which would compel them to reduce hiring or move their businesses to other, more competitive countries. This means that if Vietnam wants to remain competitive, wage growth needs to be on a par with productivity.
Historically, minimum wage increases have led to rises in average wage levels, lower profits and lower employment levels, especially for FDI and private firms. Labour-intensive sectors traditionally undertake more automation, while capital-intensive sectors cut investments in machinery.
Industry sectors
From 2008 to 2016, sectors with the highest levels of labour productivity were mining, production, electricity, gas and water supply, finance, insurance, technology and real estate. Areas with the lowest levels included processing and manufacturing, agriculture, forestry, and fisheries.
Average salaries
According to Vietnam’s General Statistics Office, the average monthly salary in 2017 was VND 6.6 million (US$290), up 9.3% compared with 2016, and higher than the growth rates for regional minimum wages at 7.3%.
In 2017, monthly average salaries for workers in FDI and private firms grew by 13.5% and 3.3% respectively to VND 6.7 million (US$293) and VND 5.6 million (US$246) respectively compared with 2016.
Cities with the highest average salaries
According to a study by recruitment consultancy VietnamWorks, these are the highest average salaries in Vietnam:
|
Cities/Provinces |
Average monthly salary (US$) |
|
Ho Chi Minh City |
456 |
|
Da Nang |
452 |
|
Binh Duong |
444 |
|
Bac Ninh |
421 |
|
Hanoi |
407 |
Labor supply
The number of labourers employed across the whole of Vietnam increased from 53.3 million in 2016 to 53.7 million in 2017. The number of employed labourers in agriculture, forestry and fisheries fell from 22.3 million in 2016 to 21.6 million in 2017, while industry and construction saw figures rise from 13.2 million in 2016 to 13.8 million the following year. The services sector also witnessed growth employment-wise from 17.8 million in 2016 to 18.3 million in 2017.
Employees between the ages of 15 and 39 years now account for nearly half of the entire Vietnamese workforce. The number of skilled employees of working age in 2017 was estimated at 21.5% of the total compared with 20.6% in 2016.
Around 32% of all employed labourers work in urban areas, while the rest were employed in rural areas. Male employees accounted for slightly more than half of the Vietnamese workforce.
In 2017, the number of unemployed of working age stood at 2.24% of the total workforce, with urban and rural rates coming in at 3.18% and 1.78% respectively. Underemployment of working age individuals stood at 1.63%, with urban and rural areas accounting for 0.85% and 2.07% respectively.
Labour force distribution
According to the government’s labour force survey for the fourth quarter of 2017, 67.8% of the workforce live in the rural areas. The Red River Delta, North Central and South Central Coast employ the largest share of the labour force at 21.7% and 21.6% respectively. The Mekong River Delta and Southeast were next at 18.9% and 17.1% respectively.
Average national labour force participation levels are 76.9%. The highest rates of employment are in the Northern Midlands and Mountains and the Central Highlands at 84.9% and 83.3% respectively, while the lowest are in the Red River Delta and Southeast.
Sector-wise, the majority of the workforce is employed in agriculture, forestry and fisheries in the Northern Midlands and Mountains, Central Highlands, and the Mekong River Delta. The majority of workers in the industry and construction sector live in the Southeast (Ho Chi Minh City) and the Red River Delta (Hanoi). Ho Chi Minh City, Hanoi and Mekong River Delta have the highest rates of employment for the service sector.
Challenges
The major challenges experienced by Vietnam’s labour market include a lack of skilled workers, the impact of Industry 4.0 and the need for labour reforms as a result of upcoming free trade agreements.
- Lack of skilled labour
Many FDI firms continue to struggle when trying to hire skilled labour in Vietnam, with about 40% finding the process difficult. According to the 2018 Global Talent Competitiveness Index, which assesses countries in terms of their ability to attract, develop, and retain talent, Vietnam ranks 87th among 119 countries. Major challenges include a lack of technology infrastructure, research and development spending and vocational and technical skills.
The problem is that this lack of skilled labour is likely to slow down the country’s desired economic transition from being reliant on labour-intensive industries to producing high-tech goods, which could reduce its competitiveness.
As a result, the government has taken steps to increase vocational and technical training in order to meet labour market requirements. In March 2018, it introduced Decree No. 49/2018/ND-CP to provide for the accreditation of vocational education.
As of February 2018, more than 1,900 vocational training centres had been set up across Vietnam, including 395 colleges and 545 vocational schools offering courses in tourism, beauty services, IT, construction, fashion, garment and textiles, pharmaceuticals, precision mechanics and hotel management. The government aims to provide vocational training to 2.2 million people during 2018.
- The Industry 4.0 effect
Global businesses are moving swiftly towards Industry 4.0 and if the Vietnamese government does not take steps to enhance the workforce, there will be a significant impact on the economy. For example, according to the International Labor Organization (ILO), 86% of textile and footwear industry workers in Vietnam are at risk of losing their jobs to technology. The highest levels of unemployment will be seen among young people just entering the market.
Therefore, the government has understood the need to introduce reforms to education and industrial training in order to bring it more in line with current market demands. The World Economic Forum’s Readiness for the Future of Production Report 2018 counted Vietnam among those that are currently unready for Industry 4.0. Among 100 countries, it ranked 90th in terms of technology and innovation and 70th in terms of human capital.
- Foreign trade agreements
Once the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and EU-Vietnam Free Trade Agreement come into effect, the country’s employment costs are predicted to rise. While these agreements improve market access for Vietnamese exporters, the government will need to focus on labour reform, developing technical skills and improving corporate governance to fully realise their benefits.
Labour rights are among the key provisions in both of the forthcoming agreements. They require members to adopt and maintain the rights as set out in the 1998 ILO Declaration within their laws, institutions, and practices. Although Vietnam has taken some steps to meet these requirements through institutional and legal reform, more needs to done in enforcement terms.
This article was first published on Vietnam Briefing.
By Koushan Das, editor.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
OTHER ARTICLES YOU MAY WANT TO READ
Implications Of Vietnam’s Minimum Wage Increase Revealed
Women In The Workforce In The ASEAN Region
