The Paradox of Labor Market
Vietnam’s workforce is estimated at around 42 million of which around 45% are younger than 35 years of age. The labor force is growing an average of 3.5 - 4% a year – faster than the average population growth of 1.4%. Every year, 1.3-1.5 million new workers enter the market. The trend of shifting labor from agriculture to industry and service continues although the pace remains slow.
Vietnam is well-known for a disciplined, hard-working, and fast-learning population. Traditions emphasizing learning and respect for authority as well as low wages and a high adult literacy rate are often cited by investors as among one of the most attractive aspects of the country’s investment environment. The World Value Survey confirms the unusual willingness to work hard of Vietnamese workers. According to the survey, many respondents in Vietnam declare that work is an important part of their lives, while only 7 percent of Vietnamese respondents see leisure as an important part of their life, a remarkably low percentage even by the standards of other hard-working societies such as Japan (40%) or the United States (43%).
Although the adult literacy rate is high – estimated at 93%, the number of professionally trained workers (including university, junior college and vocational school graduates) is still small. In 2001, the trained workforce accounted for only around 20% of the total working population. Furthermore, there is a severe imbalance between the ratio of university and junior college graduates on the one hand and vocational trainees on the other hand.
As a short-term solution, many provincial authorities now provide basic training for local workers before introducing them to foreign employers. For the long-term, the government is reforming the education and training system to train more skilled workers. It set forth an ambitious target to increase the trained workforce to 30-40% by 2010.
Foreign investors do not see the shortage of skilled labor as a hindrance to their business in Vietnam as Vietnamese workers are very fast-learning. The time and cost needed for worker training in Vietnam is often shorter and lower than some other countries. Intel would not have invested more than US$ 300 million in Vietnam if they saw the shortage of skilled labor as a problem.
The average wage in Vietnam, based on the Vietnam Household Living Standards Survey (VHLSS) 2004, was about 824,000 dong per month, or roughly 55 dollars. This figure was computed over both salaried workers and casual laborers, including the value of in-kind benefits. Although the figure is admittedly crude; for instance, in-kind benefits are most likely under-estimated and not highly precise, it confirms that labor is cheaper in Vietnam than in neighboring countries.
Wages in foreign invested companies are often higher than in domestic enterprises operating in the same sectors. According to a report by MPI, the average wage of a laborer in the foreign direct investment sector in 2004 was around 75 to 80 dollars per month, the average salary of an engineer is about 220 to 250 dollars, and that of an administrative officer is close to 500 dollars.
There are also considerable differences in remuneration levels within Vietnam. According to the same data from the VHLSS 2004, the average monthly wage in Hochiminh City was close to 1.5 million Dong per month, while in Hanoi and Quang Ninh it was about 1.2 million.
Priority for Vietnamese Labor
The Labor Code stipulates that foreign invested companies, branches and representative offices must give priority to the employment of Vietnamese labor. They are allowed to employ expatriates to work in Vietnam only when and where there are not qualified Vietnamese staff members or workers. In this case, employers must put into place training plans and programs to enable Vietnamese to rapidly qualify for and replace foreign nationals in such positions. The current labor law limits the number of expatriates employed by an enterprise (including foreign invested companies) in Vietnam to 3% of its total employees.
Recruitment and Work Permit
The newly amended Labor Law allows foreign employers to recruit Vietnamese labor directly. The previous law required foreign companies to recruit local labor through Vietnamese employment agencies. The new law does not require foreigners working in Vietnam to obtain a working visa as previously required, if they work for less than three months. Those foreigners who work in Vietnam longer than three months must apply for a work permit which is licensed by the Ministry of Labor or provincial departments of labor.
Although work hours vary slightly from enterprise to enterprise, they generally fall between 7:30 and 4:30, with a one-hour break for lunch between 12:00 a.m. and 1:00 p.m.
Normal work hours are limited by law to not more than eight hours a day and 48 hours a week. Workers of less than 18 years of age and women who are over seven months pregnant or with a child of less than one year in age are granted an extra hour off a day and are not permitted to work overtime.
All workers are entitled to at least 12 days of fully paid vacation leave each year and one day off each week. In addition, there are five official holidays in the year which amount to an additional eight days vacation. Workers in heavy or dangerous jobs or those in areas with harsh living conditions can take up to two to four extra days off, depending on the nature of the conditions. Workers are entitled to an extra day of vacation for each five years of service with the company.
Wages should be clearly set forth in labor contracts and may not be lower than the minimum rates published on an annual basis by the Ministry of Labor, War Invalids and Social Affairs. The government has made it clear, however, that the minimum rates are designed for workers performing the most simple jobs in a normal work environment and that higher rates should be paid for more difficult tasks. In practice, wage rates vary widely from company to company depending on the workers’ experience, their skills and their ages.
By law, Vietnamese and foreign workers of the same company should be paid equal salaries when performing the same work. In Vietnam, the official salary is often only a portion of an individual’s total income. The remainder comes from the company’s benefit fund and bonuses, and often from a second or third job. Consequently, many Vietnamese employees expect relatively important bonuses, which employers may use to increase employee retention and reduce turnover. Employers are also obligated to pay their employees relevant allowances, such as a regional allowance, an inflation adjustment allowance and a hardship allowance for work performed in toxic or dangerous areas.
If the job so requires, and the worker agrees, the worker may work up to a maximum of four hours of overtime a day and 200 hours (or 300 hours in some special cases) a year. Employers must compensate workers according to overtime pay rates. Overtime during normal working days is paid at 150% of the normal rate, whereas those working night shift overtime must be paid at a minimum of 180%.
Workers working during weekends and on holidays without taking other days off are entitled to earn 200% and 300% respectively of the normal rate as well.
Female workers are entitled to four to six months of maternity leave a year depending on the nature of their work. Those with babies under 12 months of age are also entitled to an extra hour off each day for nursing. (See Working Hours above.)
Employers must pay 2% of an employee’s salary or wages to an authorized health insurance company for health insurance benefits, and the employee must pay 1% for the same.
Both Vietnamese and foreign invested enterprises must pay an amount equal to 15% of the wages and salaries of its Vietnamese employees to the social insurance fund. Of this amount, 10% is paid to the local labor office for employment benefits and the other 5% is paid to a social insurance fund established by the enterprise and jointly administered by the representatives of the enterprise. This fund is used to pay employee benefits related to sickness, work-related accidents, and occupational diseases as well as for maternity leave and benefits, child care and funeral expenses of workers who die during their term of employment at the enterprise. Foreign workers are exempt from payment to the social insurance fund.
Employers are responsible for withholding 5% of each employee’s salary and paying such amount on their behalf to the local social insurance fund. This fund is used for 1) old age benefits, 2) benefits for those who are permanently disabled through work-related accidents or sickness, and 3) burial expenses related to the first two categories.
At present, the Vietnamese government provides no unemployment benefits.
Labor contracts must be entered into in accordance with the standard form issued by the Ministry of Labor, War Invalids and Social Affairs. Contracts can take one of three forms: indefinite term, definite term and contracts for specific or seasonal jobs. They should give a job description, specify the work place, wage/salary, duration of contract and probation period and address matters such as social insurance and labor protection.
Enterprises may not hire workers under 15 years old; they may hire workers younger than 18 years of age but as junior workers and in certain occupations only. Persons under 15 years of age may only be hired to work in a number of trades permitted by the Ministry of Labor, War Invalids and Social Affairs. When hiring a worker younger than 15 years of age, an enterprise must obtain the permission of the parents and in the case of workers younger than 18 years of age, follow a slightly reduced schedule of work hours.
The general manager of any foreign invested enterprise must also sign a collective labor agreement with the workers no later than six months after commencement of operations. Along with other issues agreed to between management and the workers, this collective agreement must include items such as the salary for each type of occupation, working conditions, labor protection, collective welfare and social insurance. The agreement is valid for a minimum of one year and a maximum of three years.
By law, workers’ contracts may be terminated in cases of failure to carry out their tasks, breach of discipline (for example, absence from work for five days a month or 20 days a year without valid reasons) or other misconduct, or serious injury or illness. Companies may also dismiss employees because of financial problems at the company or the addition of technology that makes workers’ jobs obsolete.
The length of notice for termination is specified in the individual labor contract. The minimum length is 30 days for definite labor contracts, 45 days for indefinite labor contracts and 3 days for project-based or seasonal contracts. A dismissed worker may appeal to the local labor agency for reinstatement. A retrenchment allowance must be paid.
Trade Unions and Labor Disputes
Labor laws give workers the right to establish and join trade unions as well as the right to strike. However, strikes are set forth as being a last resort after negotiations to settle grievances through established councils of arbitration have failed, although in practice this appears unlikely to be fruitful.
When labor disputes arise, the two parties should first arbitrate either through a conciliation council composed of equal numbers of representatives from both sides and presided over by the Minister of Labor, War Invalids and Social Affairs, or through a council appointed and presided over by the same Minister. If the arbitration fails to reach settlement or the arbitration award is regarded as unsatisfactory, the employee has the right to sue in front of the court for settlement or to go on strike. Strikes are considered to be legal when:
- they result from a collective labor dispute and are within the scope of labor;
- they are carried out by the enterprise’s employees and within the enterprise;
- the collective of employees does not accept the decision of the provincial labor arbitration or lodges an appeal to the court;
- they comply with the strike procedures stipulated by the Ministry of Labor, War Invalids and Social affairs;
- they are not included in the list of businesses for which employees are not allowed to go on strike as stipulated by the government; and
- they do not violate a decision by the Prime Minister on the postponement of the strike.
The law also prescribes clearly the formalities for preparation of strikes, as well as the activities which are forbidden before, during and after the strike.
Strikes have been mainly because of low wages and delayed payment of wages and bonuses, more shifts and/or longer shifts illegally imposed by employers, harsh treatment of workers by employers or foreign technicians/foremen, and failure to provide social and health insurance for workers. However, some strikes have been considered illegal.