Labor Newspaper: Compensate for inflation, why not?
Wage increase does not offset inflation
Survey result based on the income and minimum living costs in the Institute of Labour (Vietnam Trade Union) illustrated that: 35.6% of respondents noted their income was not enough for living expenses; 44.7% said they have to carefully and tightly save in order to meet the spending requirements, 17.9% confirmed that currently their income barely meets the family expenses; and 1.8% of the people is able to cover their general expenses and put the remaining into saving.
The cost of living in area 1 (major cities) is more than VND3 millions, however the minimum wage reaches only VND 2 millions. In area 2, the cost of living is VND2.8 millions but minimum wage achieves VND1.7 million. In area 3, the lowest living cost is VND2.6 millions and the wage starts from VND1.6 millions. In area 4, living cost is at VND2.4 millions while the wage reaches VND1.4 millions.
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By comparing the increase between income per capita and inflation rate, the issue that wage increase does not offset inflation can be clearly shown. The statistics showed that in 2011, the average income was VND4.17 millions/ person/ month, higher 14.64% compared to 2010 while the inflation recorded in 2011 was 18.58%. In 2010, the average income reached VND3.51 millions, increase 12.36% compared to 2009 and the inflation rate was 11.75%. Income in 2008 was VND2.54 millions/ person/ month, went up 16% compared to 2007 and inflation rate at that year reached 19.89%.
The above statistics show that the actual income is lower than the nominal income due to wage increase equivalent to the rate of inflation (as in year 2010). In particular, the situation of wage increase cannot offset the inflation rate as the increase in the inflation rate is greater than the average income was clearly illustrated in the year 2008 and 2011.
Compensate inflation and its advantages
Currently, in order to share these difficulties with employees, many companies have adjusted salary levels more than once a year. However, wage increase is not the best solution in this matter, but to cope with inflation, there must be compensation to offset inflation rate. This allowance can be calculated as the percentage of gross wages that an employee received in previous years. Thus, inflation compensation not only ensures employee’s interest but also companies do not have to adjust the wage level frequently.
In fact, inflation compensation has been applied by various companies to support their staffs in terms of rising inflation. In Sai Gon Entrepreneur newspaper released on 1 May 2012 stated that the survey conducted by Hay Group in October 2011 at 46 domestic and foreign companies showed 3/4 organizations surveyed (82.2% proportion) had applied several measures to minimize the negative effects of inflation on living standards of employees.
The measures that have been implemented including adding allowances to wage level by: payment at once, changing the structure of wages and benefits for employees, subsidizes employees with low salary and review salaries twice in a year. Since 2011, Pacific Corporation has compensated the inflation rate equal to 10% of total salary of each employee. This has motivated employees to work harder and contribute more to the sustainable development of the company.
In conclusion, it is necessary to bring the issue of “inflation compensation” to the collective discussion under Article 71, Section 1, Chapter V of the Draft Labor Code (as amended). This will be an important content which brings wage policies closer to the economic and social life, remove the gap between actual and nominal wage that has affected by the variation of cost of living, creating an important legal framework for employer and employee in negotiating income conditions when signing a labor contract; contribute to the social security of the economy…
Phan Van Quy (MP, XIII National Assembly)