How to Cope with Rising Wage Costs?

This is the hottest issue that has attracted the most attention recently.

Will the wage increase cause a rise in prices?

The base salary has officially increased from 1.8 million VND/month to 2.34 million VND/month since July 1. This salary increase is meaningful and necessary, as it not only improves the lives of officials, civil servants, and public employees but also brings joy and motivation to all workers, helping to reassure them in their work. However, many are concerned that the increase in public-sector income may cause market prices to rise.

Measures are needed to stabilize market prices during the 2024 year-end period

Sharing their thoughts on this issue, many experts believe that the salary increase is not the main reason for the abnormal fluctuation in the consumer price index, which measures inflation. After the base salary increase, prices may rise immediately due to a psychological effect. However, if there are no subsequent macroeconomic “shocks,” inflation will not increase significantly. On the positive side, the salary increase effect will compensate for the decline in purchasing power during the past period and is unlikely to cause a sudden jump in demand, leading to higher inflation.

According to Dr. Nguyen Duc Do, Vice Director of the Institute of Economics and Finance (Academy of Finance), the salary adjustment mainly occurs in the public sector, which is not a large part of the economy. Mr. Do affirmed that the impacts of salary increases on inflation in the coming time will not be significant. If there are no large-scale price adjustments for goods managed by the state, inflation compared to the same period will decrease significantly in the third quarter of 2024, as the impacts of the increase in health care and education service prices in the third quarter of 2023 decrease. On average, the consumer price index (CPI) for the whole of 2024 is expected to increase by 3.4%. Based on his analysis and assessments, Mr. Do emphasized that there would not be many factors causing a sudden increase in prices in the last six months of 2024, except for the adjustment of prices of goods managed by the state, the scale, timing, and specifics of which have not yet been announced and are still being awaited by experts.

Dr. Nguyen Viet Cuong, a lecturer at the School of Economics, Vietnam National University, Hanoi, also affirmed that the minimum wage increase does not cause inflation but is a consequence of inflation.

Many economists believe that inflation will tend to decrease in the last six months of the year. “Global inflation is showing signs of cooling down, and in the second half of the year, inflation compared to the same period last year in Vietnam is expected to decrease gradually after peaking in May,” said Associate Professor, Dr. Nguyen Ba Minh, a senior lecturer at the Academy of Finance.

Enterprises need to have appropriate and timely plans.

According to economic experts, to balance the equation of increasing salaries without raising prices, the market needs to be regulated well, and it depends on the government’s comprehensive solutions.

The textile industry is labor-intensive, so increases in labor and insurance costs will significantly affect businesses.

Currently, the Price Management Department (Ministry of Finance) is making efforts to stabilize market prices, ensuring the goal of controlling inflation and macroeconomic stability. The price management agency will closely monitor market price movements to advise on policies and flexible and timely price management scenarios, ensuring the major balances of the economy.

At the same time, the Department of Management will continue to closely monitor the plans and roadmaps for price adjustments formulated by the ministries, especially for goods and public services managed by the state, such as electricity, health, and education services…

For private enterprises, some companies shared that they were affected and felt pressured by the changes in wages. Mr. Nguyen Xuan Duong, Chairman of the Board of Directors of May Hung Yen Joint Stock Company, said that the textile industry is labor-intensive, so increases in labor and insurance costs would significantly affect businesses by adding to their expenses. This puts additional pressure on enterprises.

According to economic experts, with the basic wage increase, enterprises need to have flexible and appropriate plans to not affect production and business activities. The adjustment will not have a significant impact because the actual wages of employees are mostly higher than the minimum level set by the state. Therefore, enterprises will only increase costs when the minimum wage increases if they are currently using this level to contribute to social insurance for their employees.

Talking to VTV Times, Lawyer Tran Tri Hieu said that when the regional minimum wage increases, the minimum wage for social insurance contributions will also increase. Therefore, if social insurance contributions for employees are currently based on the regional minimum wage, the amount that businesses have to pay monthly for compulsory insurance will increase significantly from July 1, 2024. If social insurance contributions for employees are already based on a wage higher than the regional minimum wage, the amount of compulsory insurance contributions does not need to be adjusted.

In addition, according to Article 5 of Decree 191/2013/ND-CP, when the wage on which social insurance contributions for employees are based increases, the union funding of enterprises will also increase. Moreover, with the increase in the regional minimum wage, the minimum wage for suspension of work will also increase.

From another perspective, experts also emphasized that the minimum wage increase is relatively low, so the cost to businesses will not fluctuate much. Therefore, businesses should not plan to raise prices but take advantage of the increase in purchasing power to increase supply, develop production, and expand the market. In particular, enterprises need to proactively prepare goods sources for the year-end period.

“In the long run, the most important thing for businesses is to focus on increasing labor productivity through investment in labor, the application of high technology in production… to reduce product costs and always maintain stable prices,” recommended the General Secretary of the Association of Small and Medium Enterprises of Vietnam.