Will increasing the minimum wage make Vietnam lose its competitive advantage?

Vietnam's recent increase in minimum wages and plans by many Southeast Asian countries to increase wages have raised concerns that the region will lose its competitive edge as global production shifts.

A garment factory in Hanoi, Vietnam - Photo: ATSUSHI TOMIYAMA

With major manufacturing hubs in Southeast Asia planning to raise minimum wages in the second half of this year, Nikkei Asia said this will force businesses to rethink their strategies, as the region increasingly attracts investment and is becoming an important part of the global supply chain.

Minimum wage increase loses competitive advantage ?

Vietnam will raise its minimum wage by 6% nationwide from July 1, Nikkei reported. Workers in the two cities of Ho Chi Minh City and Hanoi will earn a minimum wage of 4.96 million VND (about 193 USD) per month, up about 80% from a decade ago. According to Nikkei, Vietnam's gross domestic product grew 6.9% in the second quarter of 2024 compared to the same period last year, showing that this is one of the fastest growing economies in the region, reflected in strong manufacturing that has attracted a large amount of foreign direct investment. However, Vietnam's minimum wage is still lower than other countries in the region, with most at over 200 USD. Nikkei commented that the continuous increase in the minimum wage could threaten one of Vietnam's many key advantages, especially when Vietnam has many businesses in labor-intensive industries such as garment and assembly. “Concerned about rising labor costs, many companies are considering expanding outside major urban areas,” said Akira Miyamoto, general director of Sufex Trading Co., a Vietnam-based intermediary that helps Japanese companies find space in industrial parks.

At the same time, Mr. Miyamoto emphasized that labor costs are not the only reason for the increase. "Land prices in industrial parks have increased significantly, especially in the area around Ho Chi Minh City," Mr. Miyamoto informed.

Countries in the region also increased wages.

Thailand is another manufacturing powerhouse in the region that is planning to raise wages, Nikkei reported. Despite opposition from the manufacturing sector, Thailand plans to raise its minimum wage to 400 baht ($10.90) a day, up 14% from the current 300-350 baht a day. The new minimum means Thai workers will earn at least about $237 a month. "The policy of raising the minimum wage to 400 baht a day nationwide is unrealistic. It is not in line with the fundamentals of the Thai economy," Poj Aramwattananont, vice president of the Thai Chamber of Commerce, said in a statement. Poj believes the new minimum wage will make Thailand lose its industrial competitiveness. Meanwhile, the Philippines said on July 1 that it would raise the minimum wage in Metro Manila to 645 pesos ($11) per day, up 6% from the current 610 pesos, effective July 17. This means Filipino workers will earn about $241 per month for the new increase. In Malaysia, the minimum wage is unlikely to increase this year. In 2022, Malaysia's national minimum wage was raised to 1,500 ringgit ($318) per month.

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Source: https://tuoitre.vn/tang-luong-toi-thieu-co-lam-viet-nam-mat-loi-the-canh-tranh-20240702222106267.htm