Labor updates
/Two stories on labor caught my attention today. Both point to rising costs of labor in the country, which is great for workers (and as an socialist dilettante: Yay!), but maybe not great for companies looking to move to Vietnam (although I still think many will move):
First, this Voice of America story on potential labor code reforms (h/t Joe Buckley). This is being driven by Vietnam’s new trade agreement with the EU, which requires greater worker protection.
Positive aspects of the reform (from the worker’s perspective) include:
The ability for workers to form unions (there is one official union now, but workers do not always feel represented by it).
It would also do away with short-term contracts for all but foreigners and elderly workers. Some companies take advantage of this currently.
On the negative side:
It would raise the retirement age for women to 60 from 55 and for men to 62 from 60.
It would also make it easier to fire workers.
Vietnam made some concessions to the ILO recently that allowed more collective bargaining. We wrote about this on July 17, and I said then that it seemed unlikely these unions would be a permanent independent voice for workers. Maybe a temporary would form form to bargain with a specific company but after that was done, it woudl disband. Now there is a second chance for a more permanent organization to be founded. But the ILO representative in Vietnam thinks things won’t change with these reforms either:
The issue is that unions have traditionally been most effective when they represent lots of workers at multiple companies in the same sector. Then collective bargaining is more comprehensive.
If these new unions are company-specific, then maybe they won’t be able to make much headway. However, workers are restless, and right now they have fairly high leverage, especially skilled workers.
That’s because Vietnam lacks skilled workers in large numbers. One of my first posts, on Jan. 2, was about the surprising high cost of labor in Vietnam. A few points from then and revisiting that now in the context of this article:
Source: World Bank. (pg 22)
There are plenty of workers in Vietnam. Factories can be filled. We talked about this with the relatively low levels of urbanization - about 55 million people DO NOT live in cities. That’s a lot of people that can move from farms into factories.
Productivity is not that bad, compared to other ASEAN countries, but it is woeful compared to China, Brazil or Russia. But those countries have much higher GDP per capita (in similar proportions - meaning Vietnam’s GDP per capita is about half of China’s, as is labor productivity).
But only low-level workers are productive in Vietnam. This World Bank report explains it well:
Estimations of the distribution of labor productivity suggest that it peaks at US$8,000 and that few firms produce more than US$60,000 of value added per worker...While labor productivity is higher in Vietnam than in Cambodia at low deciles of the distribution (e.g., US$2,766 vs. US$ 583 respectively at the 10th percentile), the reverse is true for the most productive firms (e.g., US$61,646 vs. US$ 92,378 respectively at the 90th percentile, and US$106,436 vs. US$287,632 respectively at the 95th percentile). This is suggestive of a weakness at the top of the distribution in Vietnam.
This comports with the facts of the article, where companies complain about the lack of high-qualified workers. “Only 12% of Vietnam’s 57.5 million-strong workforce are highly skilled, according to recruitment firm ManpowerGroup.”
Source: World Bank
The problem is that the level of education in Vietnam is low. You can see this in the percentage of people in tertiary education. It was just 29% in 2016 (this takes students in college/uni divided by the number of people in that age cohort). Thailand was 49%, Malaysia 46%, Indonesia and Philippines at around 35%. China was at 50% in 2018.
Looking back to 1999, Vietnam was just at 10%, so growth has been very impressive. And it will continue to grow. But it also means that the country might not be able to take full advantage of this moment, when companies are looking to move production to Vietnam. And this moment might not repeat.