The difference between minimum wage increases and real wages

Ahead of the second session of the National Wage Council scheduled to take place next week, the ILO in Vietnam has sent a reportOverview of ASEAN minimum wages in the midst of the Covid-19 pandemic and rising inflationto the Ministry of Labor, War Invalids and Social Affairs.

The organization specifies that nominal minimum wages are set by the government, while real wages take into account the impact of inflation and purchasing power. During the 2015-2022 period, Vietnam adjusted the minimum wage on an upward trajectory, from USD 119 in December 2015 to USD 168 in December 2022. The most recent adjustment was on July 1, 2022, with an average increase of 6% after a two-and-a-half-year delay due to the Covid-19 pandemic.

However, rising inflation has not increased the real value of the minimum wage much. According to ILO statistics, in the period 2015-2019, the nominal minimum wage increased by 42.7%, but inflation caused real wages to increase by only 20.1%. In the period 2020-2022, the minimum wage was adjusted by over 6%, but real wages increased by only 0.7%.

The ILO recommends that the authorities adjust the minimum wage to keep pace with inflation to maintain the real value of the increase in wages for workers, measuring the needs of workers and their families to promote social equity. However, wage adjustments should also be based on accurate data on inflation, economic growth, employment, business affordability and productivity.

The Vietnam General Confederation of Labor's survey on working life in the first half of 2023 showed that the average income of workers reached 7.88 million VND, while their family's monthly spending was 11.7 million VND. Income only met about 70% of the spending of the surveyed people. Workers' spending also increased by 19% compared to 2022, mainly due to high prices and electricity and water bills.

The Vietnam General Confederation of Labor proposed that the National Wage Council soon restart negotiations to adjust the regional minimum wage in 2024 so that if not in early 2024, it can still be implemented at the same time as the public sector wage reform applied from July 2024.

From 2025, public sector wages are expected to increase by an average of 7% per year. The Vietnam General Confederation of Labor believes that the minimum wage adjustment rate in enterprises should be at least approximately this level. Because in addition to inflation compensation, many other factors need to be taken into account after nearly two years without adjustment.

The union also requested the General Statistics Office to soon announce the minimum living standard as a basis for the parties to negotiate the increase. Because Resolution 27 stipulates that "the State statistical agency shall announce the minimum living standard annually as a basis for determining the minimum wage and recommending wage policy orientations". However, after 5 years, this agency has not yet announced it.

The National Wage Council in each negotiation session still has to base on the calculations of the technical department. Accordingly, the minimum monthly living standard of workers includes the cost of food, which accounts for 48% and non-food, which accounts for 52%. The cost of raising children is 70% of that of adults.

Vietnam Trade Union believes that this calculation is only an estimate because as life develops, it is necessary to increase the cost for the non-food group and reduce the food cost. If this calculation is maintained, the increase in each adjustment period will almost only compensate for inflation, the actual salary that workers receive will not be much more.