VIETNAM LABOR MARKET

Instructor: Duong Manh CUONG Faculty of Economics and Management Hanoi University of Technology Email: cuongdm-fem@mail.hut.edu.vn Tel: 091 201 0566

COURSE OBJECTIVES

To get information on the labor supply, demand and recent development of the Vietnamese labor market To basically understand the local regulations, policies and other relevant issues To get a deeper understanding of some issues based on in-class case discussions

COURSE OUTLINE
Introduction to Vietnams context Vietnams labor market and recent development Regulations and policies Other relevant issues

DEMOGRAPHIC/SOCIAL, POLITICAL AND ECONOMIC ENVIRONMENT

Population, 86.2 mil

Population growth,

1.19%
26/1000 total population: 70.8 years

Under-five child mortality rate

Life expectancy, (2008 est.) Educational attainments of workforce - School enrollment, primary (% gross) - secondary - tertiary Illiteracy rate (of population age 15+) Percentage of people below poverty line 2008
350.000 ng/ngi/thng (old criteria 200.000 ng) for rural 450.000 ng/ngi/thng (old criteria 260.000 ng) for urban

95% 76% 16% 3,74 % 20% (14%) by VN's standards)

July 2009, data from WB

DEMOGRAPHIC/SOCIAL, POLITICAL AND ECONOMIC ENVIRONMENT (cont.) Form of the state Head of the state Government Head of the government Major opposition parties Socialist Republic (oneparty rule) President Nguyen Minh Triet Communist Party of Vietnam Prime Minister Nguyen Tan Dung None

Government structure Ministry of Labor, Invalids responsible for labor and and Social Affairs social security issues (MOLISA)
5

DEMOGRAPHIC/SOCIAL, POLITICAL AND ECONOMIC ENVIRONMENT (cont.)

Real GDP growth, annual% 2008 6.23% (GDP $84.98 bil)

Per capita income (1993), 2008

GDP share of sectors, % of GDP 2008 - agriculture - industry - services Inflation rate in 2008 Exports in 2008 Imports in 2008 Surplus

($170), $1024 USD

($84.98 bil USD) 21.99 39.91 38.1 22.93% 62.9 Billion of US$ 80.4 (Billion of US$), -17.5 Bil USD

Source: http://www.state.gov/r/pa/ei/bgn/4130.htm March , 2009

Economic indicators 2001-05, 06, 07 & 08

2001-05 Average GDP p.a. growth (%) 7.51 in which: Agriculture 3.84 Industry 10.24 Services 6.97

2006 8.23 3.69 10.38 8.29

2007 8.5 3.4 10.6 8.7

2008* 6.23 3.79 6.33 7.2

Economic structure by ind. (%) 2005 Agriculture 21.02 Industry & construction 40.97 Services 38.01

2006 20.40 41.52 38.08

2007 20 41.8 38.2

2008 21.99 39.91 38.1

*: GSO data 2009

The growth rate of GDP components (%)

GDP and export growth rate (%)

10

Vietnam FDI attraction

Year Registered capital (USD mil.) 1991 1291 1995 6937 1997 5590 2000 2838 2004 4547 2005 6839 2006 12003 2007 21400 2008 60300 Disbursement (USD mil.) 329 2556 3115 2413 2852 3308 4100 8030 11500

Joining ASEAN

Signing BTA with US

Joining the WTO

Export-Import growth with bilateral/multilateral agreements

12

FDI commitment and disbursement (USD mil.)

Disbursement 25,000 Registered capital FDI sector's contribution to GDP

18% 16%

20,000

14%
15,000

12% 10% 8%

10,000

5,000

6%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
13

4%

Merchandise export by industrial sub-sectors (USD Mil.)

18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Crude oil Primary Agricultural resourceintensive Labourintensive production Capitalintensive production Machinery and technologyintensive goods other

2000

2005

2006

2007
14

Source of imports

15

SOME HIGHLIGHTS OF VIETNAMS REFORM PROGRAM

Open economic reform Passed Foreign Investment Law (with several amendments in response to investor concerns) Normalization of foreign relations with most countries, increase ODA disbursements and cooperation Joined ASEAN, moving to conform trade regime to meet AFTA, APEC, and WTO requirements Join WTO by Jan, 2007 Monetary, fiscal and financial sector reform Developed two tier banking system, broadened system to allow private, join venture, and foreign banks Unified exchange rates closer to the marketdetermined rate, and periodically adjusted Passed organic Budget Law, simplified tax system, increased transparency and accountability To replace turnover tax with VAT (5-10%) and replaced profit tax with uniform enterprise tax (25%)

16

SOME HIGHLIGHTS OF VIETNAMS REFORM PROGRAM (cont.)

Agricultural and non-state enterprise reform Households replaced state cooperatives as the basic decision making units in agricultural production The Land Law established household land use rights and increased security of tenure for farm families Passed Enterprise Law in 1/1/2000 allowing non-state factories and commercial sector activities Private firms now contribute nearly 80 percent of manufactured products and over 70 percent of non-oil exports Public administration and state enterprise reform Major changes in governments approach to managing and regulating the economy State control and intervention greatly reduced in a number of areas The equitization process cut the number of state-owned enterprises by more than half, from 3,786 to 1,546 over the past nine years (2000-2008). 17 Increased managerial autonomy of SOE

SOME HIGHLIGHTS OF VIETNAMS REFORM PROGRAM (cont.)

Social policy and organizational reform Substantially privatized health care, education, and other social services Real per capita spending initially fell but has now increased to above previous peaks Revised Civil Law, Labor Law (1/1/2003)

Salary reforms:
To be implemented during 2001-2009 Administrative and non-production sectors are to be the first to undertake salary reforms
18

SOCIO ECONOMIC ACHIEVEMENTS UNDER ECONOMIC REFORM (since 1986)

Per capita income growth averaged from around 3% p.a. 1986-90, to 7% in 97-00 Inflation reduced from triple digits to single digits (fr 300% in 1986 to 4 % in 2003 and 22.9% in 2008. Tight management of money supply. FDI flows increased during recent year, esp 2007, 2008 Rising share of government spending to GDP but budget deficits kept at around 2% of GDP Value of exports in 1990s growing at over 25% per annum Shift from major rice importer in the mid-1980s to second largest rice exporter in 1996 ($ 2.9 bil in 2008) Health and education indicators have generally improved for the majority of Vietnamese 19 Poverty reduction remarkably

LABOR FORCE AND HUMAN RESOURCES (CONT.)

Education:
High literacy, but access to high level education still limited (89% of population from age 10 above is literate for female and 94% for male) (Vietnam Living Standard Survey VLSS 2002) Primary enrolment rate was 95%, junior high school enrolment rate 76% and tertiary 16% (2008)

Poverty:
Poverty rate decreased fast (23% of population in 1993 in absolute poverty, down to 13% in 2000 In 2005, Vietnam introduced a new poverty assessment standard (WB is 1 USD/head/day): 200,000 VND in income per head per month in rural and 260,000 VND in urban areas. Poverty rate was 29% in 2007 (below national poverty line)
32

LABOR FORCE AND HUMAN RESOURCES (CONT.)

Labor force: Working age: 15-60 for male, 15-55 for female. 45 million conducting involved in economic activities in 2008, of which

State sectors: 4.1 mil Non state sector: 39.1 mil FDI: 1.8 mil

34

Employment in sectors
2006 2007 1000 persons Estimated 2008(*)

Total
Ownership Sectors SOEs Non state

43347,2
4007,8 38639,0

44171,9
3974,6 38657,7

45037,2
4073,3 39132,5

FDI
Economic stector Agriculture Industry and construction Service (*) Nm 2008: is data at 01/4/2008

700,4
24122,8 8192,7 11031,7

1539,6
23810,8 8825,3 11535,8

1831,4
23624,8 9385,5 12026,9

35

Labour force by occupation (%)

36

T l tht nghip ca lao ng trong tui khu vc thnh th

Unemployement rates
2006
Total Red river delta Plateau North mountainous areas Central North and Coastal Central areas Highland East areas Culong Delta 4,82 6,42 4,18 5,50 2,38 5,47 4,52

2007
4,64 5,74 3,85 4,95 2,11 4,83 4,03

c tnh nm 2008 4,65 5,31 4,13 4,73 2,49 4,85 4,08

37

Some highlights of labor market

Fast growing supply outnumbers less developed demand (new jobs created still limited) serious and increasing unemployment, low productivity, low wages

Supply does not match demand in quality: qualifications, expertise of laborers still inadequate, shortage of skilled labor Big gap

38

Some highlights of labor market

Trained laborers concentrate in big urban areas, while in rural areas skilled laborers only occupy 13% vs. 45% in urban areas Agriculture is the sector with biggest percentage of employment but has limited number of trained laborers Industry and service sectors have high growth rates but do not create new jobs respectively thus new entrants still have to look for jobs in agricultural area imbalance in sector employment allocation
39

Some highlights of labor market

Gap between urban and rural laborers: urban laborers have more access to social benefits (housing, medical services), better employment Gap between formal and informal laborers: laborers in informal sector lack capital, low productivity, lack access to market, low income, inability to access social benefits, social security Labor policies not effective and well enforced.

Big challenges: employment and social benefits for laborers

40

COURSE OUTLINE
Introduction to Vietnams context Vietnams labor market and recent development Regulations and policies Other relevant issues

41

VIETNAMS LABOR MARKET

Overview of the labor market Supply of labor

Quantity Quality

Demand for labor Trends and issues

42

INDICATORS OF VIETNAMS LABOR MARKET

Labor force (pers.) working pop, 2008 Employment by industry (%), 2008 - agriculture, forestry, fishing - industry and construction - services Informal employment (% of total) Official unemployment rate 2006, 2007, 2008 Youth unemployment rate (%) (youth: 15-24 years of age) Underemployment (defined as working < 40hrs a week, as % of total employment) 45.037 million 57.9 % 17.4 % 24.7 % 90%, inc. households working in agri sector 4.82%; 4.64%; 4.65% 11,8% 30%

43

INDICATORS OF VIETNAMS LABOR MARKET (CONT.) - Labor Migration

Receiving countries and number of migrants How many Vietnamese migrants are there and where do they go to? in 2007, there were over 85.000 persons working overseas, remitted home about 1.7 billion U.S. dollars Vietnam sent 50,980 experts and workers to work abroad in the first seven months of 2008 How many foreigners are there in Vietnam and where are they from? Nearly 53000 foreigners from 42 countries. Major sending countries are China, Taiwan, Singapore, South Korea, Japan (06/2009)
45

Sending countries and number of migrants

Source: Statistics office and www.vnn.vn

LABOR SUPPLY

Supply of labor :
Quantitatively determined by:

Size of labor force (number of people in working age-currently working or unemployed) Number of working hours people work each day/week/year

Qualitatively determined by:

Efforts people put on each hour of work, productivity Level of training and skills people bring to work

46

LABOR SUPPLY-QUANTITATIVE

Vietnam has a large, young and growing labor force Labor force participation rate: relatively high in Vietnam compared with regional countries, especially women Estimated further 1.8 mil people entering labor force from 2001 to 2010 Hours of work: Before 2/10/99: 48 working hours per week, after 2/10/99: 40 hours in public sector
47

LABOR SUPPLY-QUALITATIVE

Health conditions:
~80% of the labor force located in rural areas where infrastructure is underdeveloped Total number of medical staff (persons):
Doctor 42993 Physician, 47168 Nurse, 51112 Midwife 20087

The number of doctors per 10,000 people in Vietnam is 6.3. That is 15 and 6.5 times lower than that of the USA and Singapore respectively. More than half of them are in the cities and major provinces, 23% belongs to villages

48

Labor Supply
Vietnam labor force (prs) Year 1996 2007 Population aged 15 and above total 47,620,139 63,305,882 urban 11,026,793 17,964,868 rural 36,593,346 45,341,014 male 22,391,531 30,424,965 female 25,228,608 32,880,917 Labor force total 36,082,273 47,144,091 urban 7,243,053 11,895,757 rural 28,839,219 35,248,334

Source: report on Vietnam labor market, July 2009

49

Labor supply

Education structure of working age population 1993 1998 65% 23% 10% 2.5% 2002 51% 30% 16% 3.3% 2004 46% 33% 17% 4.0% 2006 44% 33% 19% 4.2%

No degree & primary school Lower secondary school Upper secondary school Junior College and above

49% 26% 14% 1.8%

Source: report on Vietnam labor market, July 2009

50

Labor Supply
Average years of schooling of working age population
1993

1998

2002

2004

2006

All sample Male Female Urban Rural Other minorities Kinh & Chinese

7.43 7.83 7.05 8.77 6.96 6.1 7.6

7.42 7.85 7.02 8.92 6.94 6.0 7.6

7.48 7.78 7.18 8.96 7.00 4.9 7.9

8.13 8.47 7.78 9.81 7.51 5.7 8.5

8.30 8.61 7.99

Source: report on Vietnam labor market, July 2009

51

LABOR SUPPLY-QUALITATIVE (cont.)

Health conditions (cont):

Health care establishment is considerably poor providing inadequate services to community, especially in the highland and remote areas Insufficient government investment in health care services: 1% of GDP in 90s, and 5.3% in 2001-2006; 1456 bill VND in 2006 Low expertise of medical treatment Increasing pollution impacts

Source: Vietnam Development report 2007: aiming high by World Bank

52

LABOR SUPPLY-QUALITATIVE (cont.)

Education conditions:
Traditional heritage: hard working culture, willingness to overcome difficulties, creativeness, adaptability, quick learning ability Comparatively high enrolment rate Seven agro-ecological zones: Red River delta is the leader in education level, followed by North Central, Northern Uplands, Southeast, Central Highlands and the lowest is Mekong River Delta.

53

LABOR SUPPLY-QUALITATIVE (cont.)

Education conditions (cont.)

Difference between urban and rural areas: higher education level in urban and the gap tends to increase gradually Womens education level is nearly equal to mens. Unreasonable educational distribution: the ratios of university/college per vocational and technical worker has been sharply increased Gap (VN lacks skilled workers) Year c/u per vocational per technical 1979 1/ 2.2 /7.1 1997 1/ 1.5/1.7 2007 1/1/3 2007 1/4/10 (Malaysia) Only 27% vocational and technical worker (2007)
54

Labor supply

Education structure of working age population 1993 1998 65% 23% 10% 2.5% 2002 51% 30% 16% 3.3% 2004 46% 33% 17% 4.0% 2006 44% 33% 19% 4.2%

No degree & primary school Lower secondary school Upper secondary school Junior College and above

49% 26% 14% 1.8%

Unskilled workers ratio is high Proportion of high skill workers is low Vietnam has abundant workforce, still low skill

Source: report on Vietnam labor market, July 2009

55

Labor Supply
Proportion of workers with skills
Year Total Vocational training College and above 1996 11.4 9.1 2.3 2002 8.0 3.9 4.1 2003 8.4 4.1 4.4 2004 9.2 4.2 4.9 2005 10.0 4.7 5.3

Source: report on Vietnam labor market, July 2009 More vocational training for skilled workers are needed

Vocational training program has been lauched by the government

56

Labor Supply

57

EDUCATION-A COMPARISON
Country Vietnam South Korea College/university graduates per 1000 heads 11 52

Singapore
Italia Japan Finland

16
21 70 ?
58

LABOR SUPPLY-QUALITATIVE (cont.) Training (cont.) Types of training:

Long term training (more than 36 months): 0.08% Most of vocational training is short term:

1-3 month training: 41.64% Under 12 months: 80% Response quickly to the increasing labor demand in booming industries Affordable for participants as well as their families ( even fee waive, and recruit later)

People prefer short term training because:

Long term training attracted more interest from the Gov and foreign organizations
60

LABOR SUPPLY-QUALITATIVE (cont.)

Training (cont.) Employment after training: 60% graduates found jobs through relatives or relationships 15.7% actively looked for jobs 7.5% got job through employment service agencies 1/10 graduates are self employed(running their own business given the knowledge gained from the training) Family relations tend to play the major role in finding jobs
61

LABOR DEMAND

Overview of employment: Most of the employment is created in agriculture More new jobs are created in Industrial and service sector

63

LABOR DEMAND

Patterns of employment in sectors: Private sector: risky jobs with relatively low wages, unfavorable working conditions and less chance for training and development. Lack: technical staff Public sector: long term and not pressuring jobs, average wages, benefits, training and development. Problem of brain drain to foreign invested sector In foreign invested sector: higher wages, better working conditions, but high pressure, riskier than in public sector. Lack: skilled workers and managers
64

Industrial/Sector Structure

The labor force used is still primarily rural and agricultural (livestock, aquaculture, and forestry) Reduction of share of labor employed in agriculture recently and increase in industry, services Urban: A very large movement of people out of agriculture into sales and services Service and industry account for more than 70% of labor force Rural: 80% of people involved in agriculture, although seen slight reduction Demand for technicians and highly skilled workers are high, especially for the export processing zones (EPZs): Job opening for well trained workers are available at many service centers and head hunting companies. Head hunting FIEs offer high salaries to talented students during their study at the universities
65

Employment structure in the period 1990-2007

Source : the 2001-2005 labour and employment statistics , MOLISA.

67

OWNERSHIP

Both labor in the State and non-state sectors have grown rapidly (by 10.2% and 9.2% p.a. respectively) State sector dwarfs the private sector but much less labor intensive, mainly in import substituting industries Most of private companies operate in labor-intensive sectors (textile, garment or primary processing), highly export oriented Workers employed by private manufacturers are at low education levels Share of C/U level in administrative areas is higher than that in productive sector (67.3% vs. 32.7%), Thailand: 6/4, Japan: 6.5/3.5

Foreign Invested Enterprises (FIEs):

Highest growth rate of GDP among sectors Capital intensive (oil related production, heavy industry or real estate)
69

LABOR EXPORT

90,000 workers were exported to about 40 countries at regions in 1990s (compared to 300,000 during 1980s) 85,000 in 2007 Higher quality requirement makes Vietnam labor less attractive only one third of annual target were achieved High brokering fee and lack of support from the companies who arranged the contracts for laborers 50% of total of Vietnam nationals working abroad are in East Asia, and Middle East (Taiwan, South Korea, Malaysia, ..)
70

Number of Vietnamese workers working abroad in labour contracts with definite term
Persons

2001 Total South Korea Japan Malaysia Taipei 36.168 3.910 3.249 23 7.782

2002 46.122 1.190 2.202 19.965 13.191

2003

2004

2005

75.700 67.447 70.590 4.226 2.264 4.779 2.752 3.850 2.500

39.624 14.567 19.500 27.981 37.144 20.750

Others

21.204

9.574

1.605

8.205

10.900

Source: Ministry of Labour Invalids and Social affairs (MOLISA).

71

Labor market trends

Unemployment Underemployment Wage employment Wage trends Child Labor Women labor Integration
72

Unemployment rate in 2008

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Total
AREAS Red river delta Northeast Northwest North central Coastal central Highland Souteast Cuulong river delta BIG CITIES Hanoi Danang HCMC Dong Nai

5.88
7.57 6.42 6.96 5.57 4.24 5.43 4.73 7.71 5.53 5.68 4.61

6.01
7.56 6.34 4.73 6.68 5.42 4.99 5.89 4.72 8.56 5.42 6.13 4.03

6.85
8.25 6.60 5.92 7.26 6.67 5.88 6.44 6.35 9.09 6.35 6.76 5.52

6.74
8.00 6.95 5.87 7.15 6.55 5.40 6.33 6.40 8.96 6.04 6.88 5.65

6.42
7.34 6.49 6.02 6.87 6.31 5.16 6.16 6.15 7.95 5.95 6.48 4.75

6.28
7.07 6.73 5.62 6.72 6.16 5.55 5.92 6.08 7.39 5.54 6.04 5.14

6.01
6.64 6.10 5.11 5.82 5.50 4.90 6.30 5.50 7.08 5.30 6.73 5.27

5.78
6.38 5.93 5.19 5.45 5.46 4.39 6.08 5.26 6.84 5.16 6.58 4.86

5.60
6.03 5.41 5.56 4.53 5.92 5.03

5.31
5.61 5.07 5.20 4.23 5.62 4.87

4.82
6.42 4.18 5.50 2.38 5.47 4.52

S b 2008 4.64 4.65 5.74 3.85 4.95 2.11 4.83 4.03 5.35 4.17 4.77 2.51 4.89 4.12

Source: GSO data 2009

74

UNEMPLOYMENT (cont)

Different types of unemployment: Active visible unemployment: unemployed actively seeking jobs (2.97% of the countrys labor force of working age, rural areas: 2.2%, urban: 6.01%) Passive visible unemployment: unemployed who are not actively seeking jobs even though they are able to work (low education people, females..) Visible underemployment: employment under 40 hours/week (rural areas: 25.47%, urban: 7.02%) Invisible underemployment: people working with nearly normal hours but their jobs are not the right ones they want Hidden unemployment: over crowded labor in relation to land, equipment, capital
75

UNEMPLOYMENT (cont)

Reasons for increase in unemployment: High growth of labor force while lack of laborintensive investment Vietnamese guest workers (about 200,000 workers), students and illegal immigrant returning from the Soviet Union, Western Europe, Germany.. Repatriation of boat people in 90s Downsizing the military as part of its reform and modernization program Average irrigated land per laborer is low (labor surplus in agriculture) (0.36 ha in 1986 and 0.3 ha in 2003, regional average: 0.8ha) The current education system is facing difficulties in meeting domestic demand for education and training, especially in the field of technicians and skilled workers
76

UNEMPLOYMENT (cont)

Reasons for increase in unemployment (cont) Employees laid out of SOEs due to the reform (about 20% out of the sector) Lacking (though increasing) in the number of job agencies Country economic slowdown (labor export, FDI decreasing and downsizing, relatively higher labor cost, decreasing demand for imports from partner countries, lack of competitiveness) Reduction in export capacity due to lack of competitiveness Decreasing in number of foreign direct investment projects Withdrawal or downsizing of foreign invested enterprises due to unattractive investment environment

77

UNDER-EMPLOYMENT

Definition: working less than 40 hr/week for all jobs Highest rate of underemployment was found in agriculture, primarily among the younger and the elderly groups Serious underemployment is high at 11.56% of employed work force

78

UNDER-EMPLOYMENT
Highest rate of underemployment is in Red River delta and Mekong Delta Central Highlands, South Central, and Northern Mountains have lowest levels of underemployment Source: VLSS Region N. Uplands Red River Delta N. Central Coast S.Central Coast C. Highlands Rural (%) 7.68 13.8 10.09 7.41 5.38 Urban(%) 9.6 10.85 8.41 5.89 Total(%) 7.9 13.32 9.91 7.03 5.38

Southeast
Mekong delta Total

16.03
17.46 12.06

7.97
13.66 9.54

11.97
16.78 11.56
79

WAGE EMPLOYMENT

The private sector has increased its

share of wage employment fastest

Private sector is stronger in the South than other regions

A shift from agriculture to other sectors Services and industries absorb the most labor
80

WAGE TRENDS

True wages might be underestimated due to an attitude of hiding, irregular various incomes, over report of working hours Annual increase by 9% (92-07), higher in the North and urban areas More correlation between wage and educational level reflects the development of labor market.
81

Average monthly wage and wage growth rate for period of 2003-2005
2003
Average Wage (000VND)

2004
Average Wage (000VND) Per cent of increase

2005
Average Wage (000VND)

Per cent of increase

Per cent of increase

SOEs Private firms FDI firms

1,617 1,046 1,774

23.5 14.2 -6.5

1,780 1,150 1,935

10,1 9.9 9.1

1,995 1,265 2,110

12.0 11 9,0

Source: Surveys on Employment and wage in enterprises in 2005 and 2006 by ILSSA and MOLISA. 82

WOMEN LABOR

An improvement: Increase 8% of share in NA 2% among PCs at various levels Provide loans to 6 million of women The State ensures the right to equality of women with men in all domains of work Adopt policies of encouraging the labor users to create conditions for women laborers to have regular jobs Help the women laborers to effectively develop their professional capacities and harmoniously combine work and family life Tax favorable for the enterprises using most women

83

WOMEN LABOR (cont.)

The labor user is not allowed to use female labor for heavy or dangerous jobs or jobs which necessitate contact with dangerous substances having harmful effects on the reproductive and child bearing function of the women laborers The labor users must not use women laborers at whatever age for permanent work in the mines or requiring constant immersion in water Discrimination (illegal) terms against women labor: Not recruit women Force the women laborers to agree not to marry in several years of employment
84

CHILD LABOR

Broad definition of child labor: reported to work in the past 12 months in wage work, farming or self-employed nonfarm activities of the household Age range between 6-14 Not significantly different between boys and girls Child labor reduced from 4.9 mil in early 90s to 3.6 mil in late 90s.
85

CHILD LABOR (cont.)

Rural children are about three times as likely to work as urban children 90% of child labor work in agriculture, mostly in rural areas Large jump in child labor force at age 8 (rural), 12, 16, 17 (urban) Share of children with wage work increased sharply during last decade (13% to 27%)
86

Impact of WTO participation on Market Labor

Opportunities:
Positive impact in economic terms GDP growth A no of sectors/industries have benefits thanks to liberalization, esp. for export oriented industries which are labor intensive, trading activities More opportunities for employment and income for laborers (reasoning: positive correlation between employment and openness of economy higher demand for laborers, more new enterprises). Labor structure in sectors shift from agriculture to industry and services . Also, with WTO member: increase FDI, promote private sector, thus a shift from state owned enterprises to FIEs and private sector enterprises.
87

Impact of WTO participation on Market Labor

Challenges:
Increasing gap among laborers: skilled workers will have higher pay, better benefits, unskilled workers more difficult to get jobs. Especially context of VN: capability of VN laborers fall far short of international standards/demands (lack of expertise, labor disciplines, team work, foreign languages) Non-formal sector may increase in scope. Non-formal sector: not assure social security, benefits for laborers (lack of regulation/monitoring of government)
88

Impact of WTO participation on Market Labor

Unemployment challenge: agriculture sector (60% of laborers) very backward, uncompetitive thus with liberalization, agricultural imports can affect domestic products, and employment in the sector. Other protected industries also negatively affected. Some industries/enterprises have to restructure to improve competitiveness thus may lay off laborers Demands for expertise, skills of laborers will increase Stronger movement of laborers to overseas countries brain drain
89

Conclusion

Labor supply is reaching peak structure and the transition of the economy has created employment pressures Meanwhile maintained a stable development, the policies and regulations need to ensure high and sustainable growth in terms of solving employment issues Education innovation is the most important measure to gain long term benefits
90

Legal framework: labor policy

91

THE GOVERNMENT AND THE LABOR MARKET

Institutions: MOLISA (Ministry of Labor, Invalids and Social Affairs) is responsible for regulating the labor market, followed by provincial Departments of Labor, Invalids and Social Affairs Labor Code: Came into effect on Jan 1, 1995, amended Apr 2, 2002 and effective 1/1/2003, 198 articles Applying to all employees working for individuals or organizations operating in Vietnam Setting out generally the rights and obligations for both employers and employees, labor standards Various instruments of the Code: Decrees, Circulars, Decisions National Employment Program by Government Policy of Education and Training: socialization, quality improvement Reform continued: SOE reform, SMEs promotion, integration to the region and world economy 92

THE GOVERNMENT AND THE LABOR MARKET

Employment: Employees have right to work for any employer, and to either contact the employer directly or recruit through an employment introduction organization (A 16) Employers are asked to retrain full time employees who lose their jobs due to structural or technological transfer. In case the employees are laid off, severance allowance rate is: one months salary for every year of service. Layoffs must be reported to the local Department of Labor (A 17) Highly skilled employees are entitled to hold multiple jobs through integrating labor contracts with many employers, provided they are all notified (A 129) Working conditions: Working hours: Max 8 hours/day or 48 hours/week (A 68), Max extra time: 4 hours/day or 200 hours/year Training: businesses are responsible to upgrade professional skills of employees
93

WAGE SETTING

Wages: negotiated between employer and employee, no less than minimum wages (A 55) Definition of minimum wages (A56) The rate intended for the laborer doing the simplest work in normal working conditions Meet basic needs and to permit savings to finance some accumulation of human or physical capital Periodically adjusted for changes in living expenses Minimum wages may differ, depending on the geographical region and the type of industry.

94

MINIMUM WAGES

Minimum wages vary between Domestic and foreign investment firms. (USD14 vs. 35-45) For SOEs: there are 26 wage ranges and 21 wage grades with the deferential relationship between minimum : average: maximum as much as in 1:1.82:7.06 times. FIEs can apply their own wage scales and brackets but cannot be lower than that applied for domestic ones

95

MINIMUM WAGES (cont.)

Reasoning: high effective MW tend to reduce employment because:

Increase production costs, hurt export Deter export-oriented foreign investment Capital-intensive replacement

Realities: how do the MW levels affect state owned, private and foreign sectors in VN?
96

MINIMUM WAGES-DOMESTIC FIRMS

MW represents roughly one forth of average and one third of rural wages Workers with no diploma earn on average more than 3 times the MW The MW is unlikely to present any obstacles to the development of the export-oriented domestic private sector

97

MINIMUM WAGES-FIEs

No effect of capital replacement investment among FIEs Low labor cost advantage:
Other countries policies to attract foreign investment Foreign investors can shift part of their production to more competitive countries easily

Labor costs are not the most concern of FIEs

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SALARY REFORM

Cut state budget subsidy for wide range of administrative and non-production sectors The government could save 20% of annual expenditures MW increased from VND144,000/month in 1999, 450,000 in Oct 2006, and now 650,000, and expected 800,000 in 1/1/2010 MW rate adjustment implies a general increase in all incomes and expenditures Allow production enterprises more freedom in setting their own MW as determined by productivity performance within the enterprise To ensure sufficient income for a civil servant to support himself and a child of school age 99 To fight corruption

Monthly average income per capita at current prices by residence and by region
1999 WHOLE COUNTRY By residence Urban Rural By region Red River Delta North East North West North Central Coast South Central Coast Central Highlands South East Mekong River Delta 295 517 225 280 210 212 253 345 528 342 2002 356 622 275 353 269 197 235 306 244 620 371 Thous. dongs 2004 2006 484 815 378 488 380 266 317 415 390 833 471 636 1058 506 653 511 373 418 551 522 1065 628 100

New income taxes

Effective from 1st January 2009 Range 1 2 3 4 5 6 7 Taxable income /year (Million- VND) Income <= 60 60< Income <= 120 120 < Income <= 216 216 < Income <= 384 384 < Income <= 624 624 < Income <= 960 960 < Income Taxable income /month (Million-VND) Income <= 5 5< Income <= 10 10 < Income <= 18 18 < Income <= 32 32 < Income <= 52 52 < Income <= 80 80 < Income PIT rate (%) 5% 10% 15% 20% 25% 30% 35%
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Labor for foreign organizations in VN, Foreign employees working in VN

FIE can recruit directly Vietnamese employees or through an employment service agency (previously: could not directly recruit) Work permits required by foreigners working for a full 3 months or more

Total of foreigners not over 3 % of the total employment in a company, and not more than 50 persons.
Work permits: not exceeding 3 years, but could be extended.

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TERMINATION

Employment can be unilaterally terminated: Natural disaster forcing the employer to scale down production The business terminates its operation When terminating contract with a regular worker (working 12 months or more), employer has to pay severance allowance of half of a months salary for each year of employment Most private sector companies hire workers on very short term contracts (most full time workers in the private foot-ware, garment and food processing sectors are in the 6-month to 1-year contract)
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LABOR DISPUTES

Labor dispute about rights and benefits relating to employment, wages, incomes, and other labor conditions; include an individual labor dispute between an employee and an employer, and a collective labor dispute between a labor collective and an employer. Be resolved based on principles: (1) direct negotiation and conciliation, (2) conciliation and arbitration, (3) Trade union participate in process
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LABOR DISPUTES

On the rise? Main reasons: Employers do not follow the Labor Code Laborers do not clearly understand the regulations Lack of Trade Union presence To solve problems: The employer The employee The MOLISA officials: Labor Code should be made more familiar to both employers and employees. Trade union offices be established. Government increase inspections of labor issues and require employers to seriously comply with the Labor 106 Code

LABOR DISPUTES COLLECTIVE

Peoples court

Provincial labor arbitration council

Labor reconciliation council

Laborer group

Disputes Direct negotiation

Labor User
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LABOR DISPUTES INDIVIDUAL

District Peoples Court Labor reconciliation council

Individual laborer

Disputes Direct negotiation

Labor User
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Strikes
Strikes: Laborers have the right to go on strike Article 174: strikes are forbidden at businesses of public service or business essential to the national economy or national security an defense Article 175: strikes that are judged to constitute a serious danger to the national economy or to public safety may be postponed or ceased by direct order of the Prime Minister. Peoples Court decides which strike is lawful or not. 109

Strikes

In 2007, at least 541 labor strikes were held across the country, mostly at foreign-invested factories and involving an estimated 350,000 workers. 650 strikes in the first 8 month 2008, 80% from FDI South Korea and Taiwan. More than 20,000 Vietnamese workers went on strike demanding a 20% increase to their US$59 monthly salaries at a Taiwanese-owned factory (Nike shoes) in 2008. There have been more than 1,000 labor strikes in the southern commercial city since 1998, mostly at foreigninvested companies.

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SOCIAL SECURITY
-

Social security legislation: 1961: first social security system, covering 600,000-700,000 people (out of a population of 17 million at that time), in North Vietnam only. Until 1995, the Ministry of Labor, Invalids and Social Affairs (MOLISA) and the Vietnam General Confederation of Labor (VGCL) administered social security issues. Funds came mainly from the state Budget 1995: Foundation of Vietnam Social Security organization (managed by the MOLISA): social security fund for employees from various sectors, independent of the state budget.

Social security to take care events of illness, death, retirement, pregnancy, work-related accidents, occupational disease, unemployment.
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Separate provisions for female employees

Ensure the equality of women as for men (recruitment, wage, wage increases..) Assist women to harmonize family and work duties Preferential treatment, tax reduction for enterprises employing high no. of women laborers textile/garment Employer prohibited to dismiss women workers for reasons of marriage, pregnancy, maternal leave Maternity leave: 4 months (with full salary payment) Maternity allowances: 1 month of salary
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Separate provisions for junior workers

Junior workers: under 18 years old

Employment of under 15-year children: prohibited except in certain cases, in which case need parents/guardian approval Prohibit to employ junior workers in heavy or dangerous work as stipulated in list issued by MOLISA
Normal working hours: not exceed 7 hours per day, 42 hours per week

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SOCIAL SECURITY (cont)

Compulsory and voluntary social security Compulsory for employees with indefinite contracts or definite contracts of 3 months or more Voluntary for employees with definite contracts less than 3 months or seasonal basis Criteria for pension: 60 (men), 55(women) years of age, and paid social insurance contribution for 20 years+. Lower rate if satisfies either of criteria. On maternity leave, entitled to allowance of 100% of salary and additional allowance of 1 months salary
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SOCIAL SECURITY (cont)

Source of funds: contribution rates are 15% of total wages funds for the employer and 5% of the salary for the employee, assistance from the State with additional sources, profits from the funds. MW, not actual wages be referred for Social Security contribution.
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SOCIAL SECURITY (cont)

Coverage: - Compulsory for employees of state sector, of state owned enterprises, private enterprises, international organizations, enterprises with FDI, and EPZs. - Coverage rate is very low, mostly focused in state sector and few participate in voluntary scheme. Pension coverage almost universal in state sector (91% civil servants, 93% of SOE employees, in 2003). Active contributions: 86% from state sector, only 14% from private sector. (the law sanction is not high enough to change the firms s behavior). Excluded are especially people who live in rural 116 areas and workers in the informal sector.

TRADE UNION

(A7) The laboring people have the right to found, join and work for the trade union according the trade union law in order to protect their rights and lawful interests (A153) Six months at the latest after a newly created business becomes operational for newly created businesses, the provincial federation of trade unions must set up a provisional trade union organization at the business to represent and protect the rights and interests of the laborers and the collective of laborers (A154) The employer must not prejudice an employee because he has formed, joined, or participated in the activities of a trade union organization. The employer must not apply economic pressures or other measures to interfere with the organization and 117 activities of trade unions.

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Thanks for your attentions!

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