Letter to the Committee of Social Affairs, Ministry of Labor and Social Affairs on the application of inflation allowance.
08/13/2012
To: - the Committee of Social Affairs- Ministry of Labor and Social Affairs
- Vietnam Labor Union.
The announcement of the minimum wage and salary during the past years is an evidence of the Government effort to help employers and employees to create a salary system suitable for each organization and help both the employeer and the employees to secure their benefits and contribute to stability of the social welfares. However, due to the fluctuation of the CPI compare to earlier forecast of the Government and National Assembly the real income of the employees is lower than their nominal salary. The reason is the real inflation is higher than the rate planned by the Government and the National Assembly.
The status of 'Salary increase does not respond to the inflation' becomes the concern of employees and voters. Right in the Fist Session of the XIII National Assembly, 43 Deputies gave their opinions on inflation and its impact on social life.
To continue to give further comment on the Labor Law (the Revision), I would like to give explanation about 'Expected inflation and the real inflation' to see how the policy update is behind the consumer prices variation. I also provided data and analysis on 'Real Salary and the nominal salary' to give a comparison a salary increase with the inflation rate to show how much the real salary is reduced in comparison to the nominal salary. In conclusion of this I propose to include the content of 'Inflation compensation' as one of the item of Collective Labor Agreement according to Item 1, Article 72, Paragraph 1, Chapter V of the Draft Law (the Revision).
1. Expected inflation and real inflation
Article 56 of the Labor Law says: 'The minimum salary is determined to ensure that the simple labor in normal working condition can compensate his/her energy and partly be accumulated to reproduce the energy. The minimum salary is used for calculation of salary for other type of labors. The Government decides and announces the general minimum salary and the minimum salary for region and business type after consultation with Vietnam Labor Union and representatives of Employers. When the living costs increase and make the real salary reduce, the Government will adjust the minimum salary to ensure the real salary'.
So, the minimum salary as defined in the Article 56 of the Labor Law has reflect the living cost variation. However, the adjustment of the minimum salary will be made 'when the living costs increase' based on past year index and assumption of the following year. It may not reflect the real price escalation. According to past 5 year statistics, there were 4 years the inflation have been higher than the same that were approved by the National Assembly, namely,
- In 2011: The National Assembly approved the inflation 7%; the real inflation was 18,85%
- In 2011: The National Assembly approved the inflation 7%; the real inflation was 11,75%
- In 2009: The National Assembly approved the inflation 7%; the real inflation was 6,25%
- In 2008: The National Assembly approved the inflation 8,5 - 9%; the real inflation was 19,89%
- In 2007: The National Assembly approved the inflation 8,5%; the real inflation was 12,6%
It obvious that the salary adjustment by the Government has included the past year index and assumption of the following year, however it does not fully reflect the real inflation at different time, Thus, when the inflation is higher than the index that was approved by the Government and National Assembly it does mean that the real minimum salary is lower than the nominal salary.
2. The real and the nominal incomes
The most recent 3-year statistics showed that though the income of the labors increase, it does not catch up the inflation, namely,
- In 2011: the average income of the labor increased by 4.17mil VND/month (increase by 14,64% compare to 2010), while the inflation was 18,58%
- In 2010: the average income of the labor increased by 3,51mil VND/month (increase by 12,36% compare to 2009), while the inflation was 11,75%
- In 2008: the average income of the labor increased by 2,541mil VND/month (increase by 16% compare to 2007), while the inflation was 19,89%
From these statistics we could see the real income of the labor reduced relatively compare to the nominal income. In other word, the salary increase does not meet the inflation in 2008, 2010, 2011.
3. "Inflation compensation' - a concept to be included in the Labor Law (the Revision)
As we have analyses in above (1) and (2), the minimum salary, though having foreseen the living costs, it does not fully reflect the real pricing. It resulted in difference between the real and the nominal incomes or even the real income is lower.
Nowadays, to share the difficulties of the employees during the high inflation time, many business corporations adjust salary irregularly and more than one time in a year. However, this is not the best solution to cope with the inflation, instead the inflation allowance can best cope with it. Inflation allowance is in percentage of the real salary of he employees of the precedent year. So, the employees benefit is secured and the business corporation do not worry about irregular salary adjustment.
In reality, many business corporation applied the inflation allowance during the high inflation time. Say Gon Businessmen magazine on January 5th, 2012 disclosed the survey of Hay Group conducted in October, 2011 at 46 domestic and foreign business companies in Vietnam. 82,2% of companies in the survey have combined measure to mitigate the impact of inflation on their employees. The taken measures include increase of salary allowance by one-time payment, restructure of the salary, subsidy for the low income employees and reviewing salary twice a year, free lunch coupons, fuel subsidy etc. In Pacific Corporation 10% inflation compensation have been paid from 2011. This help employees contribute efforts and mind for the company.
From above practice, it's necessary to include the 'Inflation compensation' as one of the item of the collective agreement Item 1, Article 72, Paragraph 1, Chapter V of the Labor Law (the Revision). This will be an important item to create a salary policy that reflect the real situation; to give a legal basis for employer and employees to agree the salary in the labor contract; help improve the social welfares and security.
Phan Van Quy
Latest news
• Two questions to the Ministers (11/20/2013)
• Questions to the Prime Minister Nguyen Tan Dung from Deputy Phan Van Quy (11/15/2012)
• Letter 05 to Ms. Pham Thi Hai Chuyen, Minister of Labor and Social Affairs (08/13/2012)
• Letter 04 to Mr. Vu Huy Hoang, Minister of Industry and Trade (08/13/2012)
• Question to Mr. Nguyen Xuan Phuc, Deputy Prime Minister (08/13/2012)
Older news