To increase Vietnam’s labor productivity: Cheap labor is not an advantage

According to experts, the factor of cheap labor is no longer a big advantage for Vietnam to promote an increase in labor productivity for the economy.

Economic restructuring still has some bottlenecks

According to Assoc.Prof.Dr. Nguyen Duc Thanh, Director of the Institute for Economic and Policy Research (VEPR), there are many reasons for Vietnam’s labor productivity (labor productivity) to be the lowest in the ASEAN region and very far from developed countries. In particular, there are reasons due to limitations in the working environment, economic restructuring, working conditions, low density of technology and capital use of Vietnam, skills and skills of laborer is limited.

Regarding difficulties in the process of restructuring the economy to improve labor productivity, Mr. Thanh said, in the past 10 years, the shift from low-productivity areas to high-productivity economic areas is showing signs of slowing down.

The cause of the urbanization process, as well as the ability of workers to move from rural to urban areas is limited. On the other hand, the industries that can absorb a large amount of labor are not expanded, have no market and limited competitiveness.

“Vietnam’s export market has not yet met its potential. Therefore, I think that the market development stage is the most important to absorb the current surplus labor.” said Prof. Dr. Nguyen Duc Thanh.

Assoc. Dr. Nguyen Duc Thanh cited research results from VEPR, saying that the labor productivity of state-owned enterprises (SOEs) are high, possibly in the future. And this area is creating a very far distance from the labor productivity of the private sector.

Explaining this, Mr. Thanh said that the core issue is not whether employees in the state sector are more effective or superior, but because the state-owned enterprise is the area to be enjoyed. There are huge incentives in terms of capital, technology and especially monopoly on the market, so SOE output is of better value. Meanwhile, the SOE sector employs a small workforce, and is increasingly being withdrawn from state-owned enterprises because of a downsizing of staffing and restructuring.

“The private enterprise sector attracts a lot of workers but does not have the infrastructure to develop production and business, is not equipped with many equipment, no experience, no market, no technology and all these factors are poured into the huge workforce here, making the average productivity of the private sector extremely low,” Assoc.Prof.Dr. consider.

Regarding solutions to improve labor productivity, Mr. Thanh said that this is a long-term process, requiring patience with a series of synchronous actions from expanding the market for the products that we have advantages, accumulating capital, expanding production for the private sector so that they can have better development. In addition, efforts should be made to reform restructuring and labor quality.

“If you want to reform labor productivity of the economy, you should focus on the private sector. It is necessary to create a business environment for them to be able to produce at the lowest cost, limiting barriers, thereby improving the organization, production capacity, increasing labor productivity effectively,” Mr.Thanh said. Strong and affirming, besides the open policies of the State, businesses also need to equip themselves with knowledge to increase productivity.

Cheap labor is no longer an advantage

According to Mr. Nguyen Anh Tuan, Director of Vietnam Productivity Institute, despite efforts to narrow the gap, Vietnam’s labor productivity is still much lower than other countries in the region as well as in the world.

To solve this problem, there should be many solutions, in which, attention should be paid to changing the environment and institutions to create favorable conditions for economic sectors to increase competitiveness, thereby increasing labor productivity. “Increasing labor productivity should come from the mindset of business leaders, the thinking of leaders at all levels and the employees themselves”, Mr. Tuan affirmed.

Also according to the Director of the Vietnam Productivity Institute, in order to increase labor productivity and economic development, Vietnam needs to change the thinking that cheap labor is still a great advantage for us.

“If the labor is cheap, the income of the employee is low. For example, the story of the medical industry, Vietnamese doctors can operate many times more than foreign doctors. However, the value of the doctor in Vietnam is very low, the reason is that the doctor’s salary is lower than other countries. Vietnam should move away from thinking, so it should not be considered an advantage anymore. Vietnam cannot prosper if it thinks that it is cheap labor all the time,” Mr. Tuan said.

Mr. Nguyen Anh Tuan added that in order to improve labor productivity, Vietnam should go into higher value areas instead of processing products for countries as at present, at the same time, institutional reform and create favorable environment for business development.

Regarding this issue, Assoc. Prof. Dr. Nguyen Duc Thanh also said that at present, Vietnam market still has a large number of unskilled cheap labor. This group of people is stuck in rural areas, agricultural areas, but cannot move to more productive sectors.

The reason is that in the more productive economic areas, such as industry, there has not been much improvement in recent years. Vietnamese goods do not have great competition, it is difficult to expand the market, so it cannot create jobs for workers.

Productivity and Quality Office