VietNamNet Bridge – The Central Institute for Economic Management (CIEM) has warned that low labor cost will soon be no longer an advantage of Vietnam and therefore the country should take prompt action to raise labor productivity.

In its recent report, CIEM pointed out that the labor productivity of industries like mining, processing, auto and bike repair is not much higher than the nation’s overall productivity. Due to slower labor productivity improvement than wage hikes in the past years, the labor cost is actually no longer low.

In 2012, the overall labor productivity was around VND62.8 million per laborer while the productivity of manufacturing was VND79 million and of commerce and repair was VND66.8 million.

This means the industries with low labor productivity have grown faster than those with high productivity in the past years as the first have made use of the cheap labor advantage.

Labor productivity of the manufacturing industry in 2001 was around 2.75 times higher than the country’s average but the gap declined to 1.25 times in 2012.

This signals the upper limit of low labor advantage in Vietnam is coming, said Dang Thi Thu Hoai, deputy head of the Public Service Policies Department at CIEM.

“So, low labor cost, one of the advantages of Vietnam in the past years, might no longer last,” she said.

Hoai stressed in the coming time, Vietnam will have no choice but to increase the labor quality and promote development of industries with high labor productivity, enhance the application of technology in production and business.

This matches wage hikes in Vietnam, which are higher than in Laos, Cambodia and even Indonesia.

According to CIEM, the overall labor productivity remained low last year when a laborer generated around VND48.72 million on average, over VND20 million higher than in 2001 (based on the price of 2010).

CIEM quoted statistics of the Conference Board Total Economy Database saying that compared to other countries, Vietnam’s labor productivity is still low. Based on the U.S. dollar price in 1990, labor productivity in Vietnam reached US$5,880 in 2010, equivalent to 13.2% of Japan’s, 23.3% of Malaysia’s, 12% of Singapore’s, 13.3% of South Korea’s, 46.5% of China’s, 37% of Thailand’s and 69.9% of the Philippines’.

Recent reports of the International Labor Organization (ILO) and the Asian Development Bank indicated Vietnam’s labor productivity was one of the lowest among ASEAN countries with US$5,440 last year (based on the price of 2005), higher than that of Laos, Cambodia and Myanmar, but much lower than that of the Philippines and Thailand.

Nevertheless, the CIEM said though labor productivity was low in the 2007-2013 period, there were some improvements.

Statistics showed while ASEAN countries’ average labor productivity was US$9,173 in 2007 and 2.12 times higher than that of Vietnam, the gap narrowed to 1.98 last year.

Besides, the differentials between Vietnam and Singapore, Thailand and the Philippines were reduced, from 21.35 times to 18.03, three times to 2.71, and 2.04 times to 1.84 respectively in 2007-2013.

Low productivity was also the major concern voiced by foreign investors at the Vietnam Business Forum in Hanoi last week.

Gaurav Gupta, chairman of the American Chamber of Commerce (AmCham) in Vietnam, cited McKinsey Global Institute as saying Vietnam’s per capita production is US$3,800 per year, lower than US$14,200 of Indonesia, US$16,500 of the Philippines, US$21,200 of Thailand, US$33,200 of Malaysia and US$57,100 of China.

He added the challenge concerning labor productivity together with slow development of skilled laborers could be a threat to Vietnam’s growth and dent the country’s advantage in low labor cost.

SGT/VNN