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Vietnam and Cambodia’s new national minimum wage talks begin

Partner of Phuoc & Partners – Mr. Dinh Quang Thuan, who has given several practical comments on the online article of People Management Asia magazine, titled “Vietnam and Cambodia’s new national minimum wage talks begin“.

Author: Poorna Rodrigo and Michael Tatarski | Date: 17 Aug 2016 


Vietnam’s National Wage Council proposes the lowest increase in nearly a decade

Minimum wage reviews are underway in Vietnam and Cambodia, with employers seeking to keep payrolls low to help them compete on the international stage.

On 2 August, Vietnam’s National Wage Council proposed increasing the country’s regional minimum wage (RMW) by 7.3 per cent, the lowest level in nearly a decade.

This figure represents a boost for some employers, as the Vietnam General Confederation of Labour had proposed an increase of 10-11 per cent, while the Vietnam Chamber of Commerce and Industry suggested just 6.5 per cent.

According to Dinh Quang Thuan, a partner specialist in labour law at Ho Chi Minh City-based Phuoc & Partners, there are two major factors behind the constrained increase. One is the stability of Vietnam’s consumer price index (CPI). “As calculated by the General Statistics Office, the CPI for 2015 was 0.63 per cent, the lowest in over 14 years,” said Thuan, noting that this showed general living costs were rising slowly.

Meanwhile, Vietnamese organisations want to remain competitive with other low cost manufacturing centres. Since 2010, the RMW has increased roughly threefold, creating significantly higher expenses for employers. As Thuan says: “Bosses may try to keep a low RMW as a competitive factor, as a high increase will lead to a rise in other costs such as salary […] and contributions to compulsory unemployment insurance.”

The RMW is broken down into four regions, with major cities receiving the highest wages and rural provinces the lowest. Once approved by the government, the RMW for 2017 will range from VND 2.6 million (US$117) a month to VND 3.8 million (US$170) a month. If an employer fails to follow the RMW guidelines, it can be fined and may be suspended from operations for up to three months.

Meanwhile, in neighbouring Cambodia, there are calls to expand the country’s national minimum wage beyond clothing, textile and footwear sector, which are the only sectors currently covered – although rates are still low, say some observers. Talks to set the level for 2017 will begin this month.

Cambodia’s Labour Advisory Committee (LAC), representing the country’s Garment Manufacturers Association in Cambodia (GMAC), the government and trade unions will start negotiations – the current level is US$140 a month. A final decision is due in October.

The Free Trade Union of Workers of the Kingdom of Cambodia (FTUWKC) is seeking a rise to at least US$171 a month while other unions have yet to commit to a target. “According to our estimations, a garment worker in Phnom Penh needs a rise up to US$195 and for those outside Phnom Penh up to US$146 a month,” said Sokny Say, general secretary of the FTUWKC. “On average, the amount should be US$171.”

According to Scott Nova, the executive director of the US-based Worker Rights Consortium, a living wage in Cambodia would be “more than three times the current wage and more than twice what the unions are proposing… The unions’ proposal is, in fact, conservative.”

Nova blamed brands and retailers for refusing to pay higher prices to factories to enable decent wages, leaving governments with limited room for manoeuvre.

There are growing calls for the national minimum wage to be applied across the board but “it is entirely a matter for the government and related partners to decide,” said Huot Chea, International Labour Organisation (ILO) project officer in Cambodia.

Cambodia’s 1997 labour law does not specify which sectors should be covered by minimum wages, but allows the government to stipulate them through a ministerial order (known as ‘Prakas’) with recommendations from the LAC, said Chea.