To date in Vietnam, despite three rounds of negotiations on annual increases in the regional minimum wage, there are still no tools to assess the impacts of minimum wage adjustments. A high regional minimum wage may help workers have a better life, but conversely, it could also lead to job losses or businesses evading employee insurance contributions to save costs when wages need to be increased.
These were the key points discussed at the seminar "Minimum Wage and Social Security" organized by the Business Development Institute (BDI) and the Hanns Seidel Institute (Germany) on September 16th in Hanoi.
The minimum wage is primarily intended to protect workers, especially vulnerable groups in the labor market; therefore, it serves as a crucial social safety net in a market economy. However, setting a high or low minimum wage can significantly impact labor supply and demand, and even affect the social security system.
A high minimum wage will lead to higher labor costs and lower profit margins, forcing businesses to shift their investment structure towards machinery and equipment to increase labor productivity. Consequently, the number of jobs will decrease, and unemployment may increase.
According to Associate Professor, Dr. Nguyen Thi Lan Huong, former Director of the Institute of Labor and Social Sciences, adjusting the minimum wage could seriously affect social security, especially leading to a potential increase in the reduction or evasion of social insurance contributions.
“According to forecasts from the Vietnam Chamber of Commerce and Industry (VCCI), if the real minimum wage increases by 3%, approximately 10.000 workers will experience reduced or evaded social insurance contributions in the short term, and about 30.000 others will experience reduced contributions in the long term. Similarly, if the real minimum wage increases by 5%, approximately 17.000 workers will experience reduced or evaded social insurance contributions in the short term, and about 51.000 others will experience reduced contributions in the long term… These workers will have to switch to informal employment, not participating in social insurance,” said Ms. Nguyen Thi Lan Huong.
Ms. Nguyen Thi Lan Huong argued that when adjusting the minimum wage, other relevant economic factors must be considered, especially the ability of businesses to pay, the impact on employment, unemployment, income, and wages before and after the minimum wage adjustment…
However, from another perspective, experts argue that increasing the minimum wage also stimulates economic growth and creates more jobs in the future. A wage increase will encourage increased consumer spending, thus boosting aggregate demand for goods and services.
In particular, increasing wages for low-income groups will have the effect of increasing aggregate demand for labor-intensive goods and services. Therefore, it will encourage production development, leading to increased employment in the future.
Raising the minimum wage will incentivize employers to shift investment from labor-intensive, low-productivity sectors to high-productivity sectors, thus stimulating economic growth. For sectors experiencing labor shortages, raising the minimum wage will lead to increased employment.
