Labor productivity reaches alarmingly low level

VietNamNet Bridge - Experts doubt that the minimum wage can be lifted each year if Vietnam’s productivity remains low compared with other ASEAN countries.
Labor experts have bright prospects for Vietnam’s development as it enters the ‘golden population period’. However, this has been overshadowed by low productivity.

Though it has improved recently, Vietnam still lags far behind other ASEAN countries.

According to the General Statistics Office (GSO), Vietnam would only be able to catch up with Philippine productivity by 2038 and Thailand’s by 2069.

It has also warned that the gap between Vietnam’s and other countries’ productivity rate would widen as these countries have made every effort to improve.

Malaysia, with an economy twice as large as Vietnam’s, for example, has announced a strategy to restructure the country’s education sector, striving to upgrade its labor force to become more competitive.

The government of Malaysia has spent 1.5 years working on the strategy, and as a result, productivity is 6.6 times higher than Vietnam’s.

A labor expert said that while Malaysia improves its labor force, Vietnam still relies on movement of labor from rural to urban areas as the major solution to improve productivity. This is not a long-term solution.

According to McKinsey, a consultancy firm, the increase in the number of workers and the movement of labor from the agricultural sector made up two-thirds of Vietnam’s GDP growth in the 2005-2010 period. Productivity improvement made up only one-third of GDP growth.

Since Vietnamese productivity remains low, the pay to workers is also low. This helps attract foreign investors in labor-intensive industries which do not require high skills like textiles & garments and footwear.

Samsung is considered a high-technology investor, but it does mostly assembling work at its factories in Vietnam.

The expert warned that after the labour supply reduces and the average wage increases, foreign-invested enterprises could leave Vietnam for new markets which can offer lower labor costs, such as Bangladesh, Cambodia, Laos and Myanmar.

The National Wage Council, in its latest move, decided that the 2016 minimum wage would increase by 12.4 percent.

With moderately improved productivity, a high wage increase and an inflexible economic structure, Vietnam may see a higher unemployment rate.

Low productivity would hinder the expansion of the national economy.

CIEM says Vietnam can only catch up to Thailand by 2035 if it has an annual GDP growth rate of over 7 percent

Source: VietnamNet

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