VietNamNet Bridge - Experts have warned that the increase in social insurance contributions will lead to a drop in labor demand in the formal sector. 

The number of workers with social insurance contributions would decrease by 1.76 percent in short term and 5.23 percent in long term, which means 131,000 workers may lose jobs in short term and 371,000 in long term. 

These would be mostly workers in foreign invested enterprises, joint ventures, joint stock companies and limited companies. About 110,000 jobs would be cut in textile & garment sector, 105,000 in manufacturing and 59,000 in service sectors.

According to Nguyen Viet Cuong, deputy head of MDRI (Mekong Development Research Institute), the high required social insurance contribution would lead to employment reduction, product price increase and lower economic growth rate. 

The revenue of the social insurance fund would also decrease because employers may recruit seasonal workers instead of offering long-term jobs.

Higher social insurance contributions will lead to higher labor cost. If the cost increases by 10 percent, the labor demand would decrease by 1.75 percent in short term and 5.19 percent in long term.

At present, the sum of money businesses have to pay for social insurance and related funds accounts for 13.9 percent of total payroll. 

If the proportion increases to 24 percent, businesses will see the cost increase by 10.1 percent. 

The increase means the 1.76 percent decrease in the labor demand in short term and 5.23 percent in long term.

Experts predicted that 11.8 percent of private enterprises would see their profit decrease in short term and 21.6 percent in long term. 

In short term, if the other conditions remain unchanged, the profit of all enterprises is expected to decrease by 7.6 percent.

Also according to Cuong, international research also shows that higher social insurance contributions will lead to a lower employment rate. 

According to Heckman & Pages, if the social insurance contribution increases by 10 percent, jobs would be cut by 10 percent in OECD countries.

MDRI suggested that the required social insurance contribution should be adjusted and should be equal to 20-25 percent of the wage fund.

Experts have also repeatedly warned that the continuous minimum wage increases would challengeVietnamese businesses as their advantage in low labor costs would no longer exist.

Hoang Phuong Lan of the Finance Academy, comparing countries' minimum wages in the World Bank report, pointed out that Vietnam has had the sharpest increase in minimum wage. 

Vietnam, Indonesia and China are the only three of seven surveyed countries which have a minimum wage increase, while the increase in Vietnam is the sharpest (14 percent in Vietnam and 7 percent in Indonesia).

Kim Chi