The “ripple effect” of the new minimum-wage increase

The “ripple effect” of the new minimum-wage increase

Production costs are expected to increase sharply after the National Wage Council approved a plan to increase the regional minimum wage by 15.1 percent next year.

The plan needs the Prime Minister’s approval, but analysts believe that the wage increase is unavoidable.

They said this would be another blow to business owners, who were forced to raise the minimum wage by 10 percent in early 2014.

If the plan is approved, the minimum wage for region 1 will be VND3.1 million a month, or VND400,000 higher than in 2014. The new minimum wage will be VND2.75 million for region 2 (up by VND350,000), VND2.42 million for region 3 (up by VND320,000), and VND2.2 million for region 4 (up by VND300,000).

Businesses, which continue to struggle during the economic downturn, will now be in more difficult conditions.

However, the 15 percent minimum wage increase is nothing compared with consumer price increases.

Pham Ngoc Hung, deputy chair of the HCM City Enterprise Association, said most businesses in the city pay their workers higher than the minimum wage, and the minimum wage increase will not help improve the income of low-skilled workers as expected.

Also, according to Hung, economic growth has improved, but only modestly, an indicator of weak production capacity and consumer demand. Meanwhile, the inflation rate is not high, estimated at four percent.

He said the government should reconsider the 15.1 percent wage increase, which he thinks will put a heavy burden on business owners.

The problem is that business owners will have to pay higher for allowances and insurance premiums, which will lead to higher production costs.

Hung warned that the wage increase would also burden workers themselves.

“The usable income of workers after tax and insurance premiums is likely to decrease, because they will also have to pay more for social, healthcare and unemployment insurance premiums, to be calculated based on their wages,” he said.

When businesses have to raise workers’ pay, they tend to cut personnel. In the worst cases, they shut down because profits cannot cover expenses.

The unemployment rate in the national economy could increase, which means that the State would have to pay more for social services and unemployment insurance.

An analyst has warned that the wage increase will create a strong “ripple effect” which will affect the entire national economy.

The minimum wage increase will prompt employers to replace low-skilled workers with more qualified people. This, in turn, would lead to higher wages for qualified workers because of the increased demand.

vietnamnet