A recent survey has revealed irrational relationships between salaries and productivity in Vietnam’s businesses and industries that are grossly affecting the country’s ability to develop at its potential rate.

SOEs’ salary rationale has been inefficient as they pay too much money for shoddy services that produce low volumes of low quality products generating little profit.

The survey, conducted by the Ministry of Labor, War Invalids and Social Affairs, revealed that rate of wage increase in SOEs was much higher than that of labor productivity: 16.9 percent compared with 8.2 percent.

Meanwhile, the increase of salaries in foreign-invested enterprises (FIEs) was behind their profit and labor productivity rates.

FIEs increased their profits and productivity by 41.2 percent and 13.8 percent respectively, but only increased salaries 12.6 percent.

Causes

Regarding this irrationality, Nguyen Huu Dung, head of the Institute for Labor and Social Science, said the discord is due to differences in salary mechanisms between different types of businesses in Vietnam.

In Vietnam, a coefficient mechanism regulates salaries at different levels. That is, entry level positions and management positions have different regulated minimum wages.

Interestingly, with the minimum wages come maximum wages that cannot exceed three times the minimum waged.

SOEs have a tendency pay salaries near the maximum wage and add the cost to their expenses.

Dung said that because SOEs pay this higher rate but garner lower profits than FIEs, the rate of wage increase in SOEs is essentially much higher than labor productivity.

The minimum and maximum wages for FIEs are significantly higher than that of SOEs, but FIEs tend to pay much closer to the minimum wage.

FIEs usually calculate salaries on a more case by case basis through negotiations with their employees based on experience and qualifications, while SOE’s generally pay salaries directly in line with the coefficient mechanism regardless of the candidate.

FIEs’ tendency to pay salaries lower than the permitted maximum common initial wage creates lower wage increases compared with productivity and profit levels.

On the other hand, SOEs continue to pay higher salaries while their productivity output remains low, inefficient and ineffective. In turn, salaries grow while productivity numbers stagnate.

Consequences

Dung remarked that irrationalities between salaries and productivity in SOEs have hindered the country’s economic growth rate and sustainable development.

Essentially, Vietnamese domestic state owned companies are paying much more and getting much less than their international counterparts, while FIEs in Vietnam are spending very little and getting a lot.

FIEs do better not because of better salary mechanisms, but because of higher productivity mechanisms.

Dung added that the discord between what SOEs pay and what they receive has impacted SOEs’ competitiveness thereby limiting the competitiveness of the whole economy. With such gaps between spending an earning, SOEs cannot compete internationally.

These irrationalities have created inequalities in labor, due to salary discords, as well as imbalances in distribution and consumption relationships as the productivity they pay so much for falls short.

Therefore SOEs have no competitive edge and monopolies like petroleum, aviation, power, and post have no advantages, Dung said.

As well, the high rate of wage increase compared with labor productivity of SOEs has put FIEs under pressure to increase wages, said Dung.

This makes matters worse as several recent labor strikes at FIEs demanding higher salaries have negatively impacted the country’s investment environment, Dung said.

He stressed this is a consequence of inequality in labor relationships between different forms of businesses.

So, instead of SOEs revising their plan of action to adapt to international requirements, FIEs are paying a price.

Source: Thanhniennews