return icon

Wage hike needs to keep up with inflation control

Vietnam is set to increase the base wage from July 2023.
Wage hike needs to keep up with inflation control hinh anh 1
People shop in a supermarket in Hanoi. Wage hikes are considered an urgent issue as Vietnam is facing rising inflation pressure. (Photo: VNA)
On October 20, Minister of Finance Ho Duc Phoc presented the Government's plan to allocate 12.5 trillion VND (509 million USD) for wage reforms, including a 20.8% increase in the basic wage of civil servants from 1.49 million (60 USD) to 1.8 million VND (73.30 USD) from July 1, 2023.

If approved by the National Assembly, this is the second base salary hike since July 1, 2019, after a three-year delay due to the COVID-19 pandemic.

The base salary in Vietnam is the reference for calculating the total salary for civil servants by multiplying it with its corresponding coefficient.

The wage hike is considered an urgent issue as Vietnam is facing rising inflation pressure due to increases in fuel prices and other commodities as a result of the Russia-Ukraine war.

At the Q&A session of the 15th National Assembly meeting on November 5, Minister of Home Affairs Pham Thi Thanh Tra agreed it was reasonable to increase the basic wage as it would help create new motivation among civil servants and public employees and keep them in the state sector given the fact that nearly 40,000 civil servants left their jobs, primarily in education and healthcare sectors, during January 1, 2020 to June 30, 2022.

Many National Assembly (NA) deputies also called for a wage hike from January 1, 2023, six months ahead of the Government's proposed schedule, to compensate for the price surges which have increased 4% annually.

"This creates a shift of human resources from the public to the private sector," said Huynh Thanh Phuong, a delegate from Tay Ninh province.

Earlier on July 1 this year, the minimum wages of employees who work under labour contracts increased by 6%. The increase varies from 140 USD to 202 USD depending on the living expenses in their particular region.

Suitable time for wage hike

Not only in Vietnam, workers worldwide are asking for higher wages amid steep inflationary pressure. In some EU countries, there have been strikes and protests due to high energy prices and escalating costs of living.

But while inflation has indeed led to depressed real wages and a substantial squeeze on living standards, there have also been arguments that increases in wages could lead to further inflation – a so-called “wage-inflation spiral”.  

The idea suggests higher price inflation makes workers demand higher wages but higher costs will then lead firms to raise prices to protect their profit margins.

This psychology is true in Vietnam when information on wage hikes often goes along with the worry that prices will go up higher than salary and even before the wage hike takes effect.

Perhaps because of this phenomenon, the Government proposed to increase the base salary for civil servants and public employees from July 1 instead of January 1, 2023.

The Ministry of Finance said in the face of high inflation risk, the reform of salary policy should be carried out cautiously and in harmony with the objectives of socio-economic management in general.

January is close to the festive season with the New Year and Lunar New Year, so the demand for shopping and buying goods and services increases sharply. If the wage increase is implemented at this time, "it will put more pressure on price management because the psychology of increasing wages is accompanied by price surges, making it difficult to control inflation," the ministry said.

Thus, the Government proposed not to implement Resolution 27 of the National Assembly on the reform of salary policy for civil servants, public employees, the armed forces and workers of enterprises in 2023. Instead, the Government suggested increasing the base salary for civil servants and public employees by 20.8% to 1.8 million VND per month from July 1, 2023.

The postponement of wage reform under Resolution 27 after 2023, according to the ministry, is also due to "the global and domestic context being under great inflationary pressure".

In the 2023 state budget estimate, the Government plans to spend about 60 trillion VND for salary hikes. Funding is expected to be sourced from increasing budget revenue and annual expenditure saving.

However, according to analysts, the wage hike is only meaningful when the Government takes strong measures to control inflation to avoid a situation in which people receive one more VND but have to spend two because of inflation.

Vietnam among top countries with real wage hike

As Vietnam’s economy continues to grow despite the pandemic, rising wages will be an unavoidable feature of doing business in the country.

According to the annual Salary Trends Report by data company ECA International, Vietnam is forecast to see the second highest growth in real wage increase worldwide at 4% in 2023 in comparison with 2022, trailing behind India at 4.6%.

Asia Pacific is only the region predicted to see the average real salary increase — which is nominal wage growth minus the rate of inflation — by 1.3%. That’s compared to other regions which will see drops in average real salary of 1.5% for Europe, 0.5% for North and South America, and 0.1% for Africa and the Middle East. 

Eight out of the top 10 countries with the highest real salary increases globally are from Asia-Pacific this year, ECA international added. 

Within Southeast Asia, Vietnam, Malaysia and Thailand are expected to see higher rates of real salary growth in 2023 as the post-pandemic economic recovery continues accompanied by falling inflation. 

“Overall, workers in many ASEAN locations will see real salary growth in both 2022 and 2023,” said Lee Quane, ECA International’s regional director. “Workers based in Vietnam benefitted from having the second highest rate of real salary growth this year in the region and are expected to do so again in 2023.”

According to the Government's report at the 4th session of the 15th National Assembly, Vietnam’s GDP is expected to grow 8 % in 2022, surpassing the Government’s target of 6-6.5% for the whole year, and inflation is kept under 4%./.
Source: VNA


Careful action required to curb inflation threat

Monetary experts are still mulling over whether Vietnam should soften or tighten policies to best suit current development circumstances.


Industrial, logistics property attractive to investors: Savills

Big U.S. businesses to explore opportunities in Vietnam

Major U.S. companies will come to Vietnam to sound out investment and trade opportunities in the Southeast Asian nation beginning today, March 21 to March 23, the local media reported.

Traders' frauds cause losses to Dalat's strawberry farmers

Farmers in the Central Highlands city of Dalat are complaining about losses as local traders are selling Chinese strawberries under the Dalat brand name.

Vietnam sets up working group to fight smuggling by air

The Ministry of Finance has just signed a decision to establish a working group to fight against smuggling by air.


Hanoi Tourism Festival 2023 takes place this week

Agricultural authorities draft plan to grow one million hectares of low-carbon rice

Twelve out of 13 provinces in the region have signed up for the plan. They have committed to reaching 200,000 ha next year, 719,000 ha in 2025, and over one million ha in 2030.

Top check-in places in Hai Phong

About 120 km from Hanoi’s center, Hai Phong is a famous port city and tourist destination in the North. The city’s symbol is a phoenix flower so it is known as the "red phoenix flower city".

Silicon Valley Bank collapse not to impact VN: VinaCapital

The Silicon Valley Bank (SVB) collapse by itself will end up being neutral for Viet Nam’s stock market and economy, Michael Kokalari, chief economist at investment fund VinaCapital, has said in a report.

Careful consideration of special consumption tax on sugary drinks urged

Enterprises urge careful consideration to be given to the Ministry of Finance’s proposal to impose a special consumption tax on sugary drinks to ensure harmonisation of benefits between the State, consumers and producers.

VN pharma companies urged to invest in R&D, improve competitiveness

It is critical for pharmaceutical companies to improve competitiveness with a focus on research and development (R&D), production technology and digitalisation.

Bamboo Airways finds a new investor

A representative of Bamboo Airways confirmed that the airline had found a new investor to replace the old shareholders, former Chairman Trinh Van Quyet and other related shareholders.

Quang Ninh to have another airport on Co To Island

Co To Island, about 170 kilometers from Hanoi, has great potential for sea and island tourism.

Da Nang has new IT park

Deputy Prime Minister Tran Hong Ha has signed a decision recognizing the FPT office complex in Danang City as a concentrated information technology park.

Doctors have to work 10 years at public hospitals before earning US$400 a month

Many young doctors don’t return to the hospitals which fund their study after finishing their training courses. They leave for private hospitals where they can expect higher pay.