How does salary increase affect, increase salary of officers, increase salary of teachers

Over the past 3 years, the Covid-19 pandemic has caused the world economy in general, and Vietnam in particular, to face the risk of a severe recession. Therefore, Resolution No. 27-NQ/TW dated May 21, 2018, the 7th Conference of the Party Central Committee (12th tenure) on reforming salary policies for cadres, civil servants, public employees, armed forces and employees in enterprises has not been implemented. However, the National Assembly has decided to increase salaries by 20.8% from July 1, 2023 for those receiving salaries from the budget. Pensioners will also receive a corresponding increase. This is considered a great effort by the Government in the context that our country's economy is still facing numerous difficulties.

With the aim of reflecting the practical effectiveness of the salary increase roadmap for those receiving salaries from the budget, the impacts of salary increases on society, and at the same time providing recommendations and solutions to contribute to building a highly effective salary policy, the People's Army Electronic Newspaper organizes the topic "Salary - policy and practice".

The topic focuses on 3 issues: How does the increase in salary affect the lives of workers receiving salaries from the budget; How does the increase in salary for workers receiving salaries from the budget affect the lives of farmers - the group that may be negatively affected because they do not receive a salary increase, while market prices may increase due to the effect of the increase in salary? From there, we will find a solution to the problem of harmony in salary policy between those receiving salaries from the budget and farmers; solutions to solve existing problems of salary policy, so that this policy can truly become a driving force for development.

Lesson 1: "The chorus of wages and prices"

Increasing wages means increasing workers’ income. However, in the past, increasing wages many times has brought about the opposite result. When wages have not increased, prices have increased beyond the increase in wages. Therefore, “wages - prices” has had periods of time when it has become a “sad” refrain for those who receive salaries from the state budget.

The stages of reform

Since the founding of the Democratic Republic of Vietnam (now the Socialist Republic of Vietnam), there have been a total of four salary reforms.

The first salary reform was in the period of 1960-1984. On July 5, 1960, the Government Council issued Decree No. 25/CP regulating the salary regime in the administrative and career sector. Accordingly, the salary regime of cadres and civil servants working in administrative and career agencies is implemented according to the following principles: The salary of leading cadres is higher than the salary of subordinate cadres and employees; the salary of positions requiring high technical and professional requirements is higher than the salary of positions requiring simpler technical and professional requirements; the salary of workers in difficult conditions, harmful to health is higher than the salary of workers in normal conditions; cadres and civil servants are ranked according to the position they hold, when the position changes, the salary level also changes. The minimum salary according to Decree No. 25/CP is 27.3 VND. The salary table for positions is designed according to the minimum - average - maximum salary relationship of 1 - 2.56 - 7.03. Specifically, level 1 service staff has a salary of 27.3 dong, level 1 light industrial engineers have a salary of 70 dong, and those holding positions equivalent to ministers have a salary of 192 dong.

The second salary reform was carried out in the period 1985-1992. The Resolution of the 8th Central Conference, Session V (June 1985) and Decree No. 235/HDBT dated September 18, 1985 of the Council of Ministers (now the Government) on improving the salary regime of workers, civil servants and armed forces led to a major reform in price - salary - money.

Decree No. 235/HDBT stipulates the salary scale and table for workers, employees, managers of enterprises and companies and the salary table for positions of officials and civil servants in public service organizations and State management agencies. The principle of receiving salary is that the salary is paid according to the job and position.

In Article 2, Decree No. 235/HDBT stipulates: The minimum wage is 220 VND per month. This wage corresponds to the price level in areas with the lowest cost of living. When the price level changes or in areas with higher cost of living, the salary is calculated with an additional cost of living difference allowance. The salary table for positions is designed according to the minimum - average - maximum salary relationship of 1 - 1.32 - 3.5. Accordingly, level 1 service staff have a salary of 220 VND, level 1 engineers have a salary of 290 VND, those holding positions equivalent to ministers have a salary of 770 VND.

The period 1993-2002 saw the third wage reform. The goal of Vietnam's wage policy reform during this period was to make wages a measure of labor value, applicable to all economic sectors with market-based labor relations. Decree No. 25/CP of the Government stipulated the minimum wage in 1993 at 120,000 VND/month. On January 21, 1997, the Government issued Decree No. 06/CP, raising the minimum wage to 144,000 VND/month. Next, on December 15, 1999, the Government issued Decree No. 175/1999/ND-CP with a minimum wage of 180,000 VND/month. On December 15, 2000, the Government issued Decree No. 77/2000/ND-CP, raising the minimum wage to 210,000 VND/month.

The most recent salary reform took place in the period 2003-2020. Decree No. 204/2004/ND-CP dated December 14, 2004 stipulates: Salary payment must be linked to the performance of the tasks of cadres, civil servants, and public employees and the salary payment source (from the State budget or support and from revenue sources according to the law used to pay salaries) of the agency or unit. Accordingly, salaries must be changed comprehensively for all laborers; with a minimum salary of 310,000 VND/month. Then, on September 15, 2005, the Government issued Decree No. 118/2005/ND-CP adjusting the general minimum wage to 350,000 VND/month. On September 7, 2006, the Government issued Decree No. 94/2006/ND-CP adjusting the general minimum wage, raising the general minimum wage to 450,000 VND/month.

Since 2013, the minimum wage for calculating salaries for public sector employees has been changed to the basic salary. On November 9, 2016, the National Assembly issued a Resolution on the 5-year financial plan, which includes the content of increasing the minimum basic salary by an average of 7%/year for the period 2016 - 2020. As of July 1, 2018, the basic salary for public sector employees reached 1,390,000 VND/month.

From the practice of wage policy reform, especially from 1992 to present, it shows that the efforts and endeavors of the entire political system, the reform of wage policy of our country has achieved many positive results. The Party and State of Vietnam have paid attention early and made many efforts in reforming wages for workers, including the periods when the country was at war and under embargo. However, although the results achieved in wage reform are very significant, compared to the needs of workers, the requirements of the country's development and international integration, the wage policy still has many shortcomings and limitations.

Salary "runs" according to price

Increasing wages means increasing workers’ income. However, in the past, repeated increases in wages have had the opposite effect. When wages have not increased, prices have increased beyond the increase in wages. In other words, wages always “follow” prices.

Of the four wage reforms, the second (1985-1992) witnessed a period of hyperinflation. In 1986, inflation reached 774.7%, causing economic chaos. For agricultural products alone, prices increased by 2,000% compared to 1976. In 1987, inflation was 323.1%. In 1988, inflation jumped to 393%. It was not until 1989 that it dropped below 100% (34.7%).

The hyperinflation of the 1985-1992 wage reform period made wage increases meaningless. They even became a nightmare for wage earners.

Another typical example of the situation of wages “chasing” prices is the period 2004-2012. In 8 years, the minimum wage was adjusted a total of 7 times, from 210,000 VND/month (2004) to 830,000 VND (2012), nearly 4 times higher. On average, each year increased by about 15%. However, during the 7 minimum wage adjustments, the inflation rate also increased by about 2.5 to 3 times. Notably, during the period, there were two years of double-digit inflation, much higher than the minimum wage increase. In 2008, the minimum wage was adjusted from 450,000 VND to 540,000 VND, an increase of 20%, but the inflation rate reached 22.97%. Similarly, on May 1, 2011, the minimum wage increased by 100,000 VND (13.7%) but the inflation rate in the first 9 months of 2011 reached 18.16%.

In general, in the period 2004-2012, the total increase in salary was still slightly higher than the inflation rate. However, in reality, the living standards of wage earners have not improved significantly. The reason is that the living standards of wage earners are most strongly influenced by the food and foodstuff group. Meanwhile, in the "basket of goods" used to calculate the consumer price index, the increase in the food and foodstuff group is always the highest, while items such as electronics and refrigeration have decreased sharply, while clothing has an average increase. For example, in 2003, 1kg of rice cost about 4,000-5,000 VND, by 2012, it fluctuated between 17,000-20,000 VND, an increase of about 4 times. In general, the price of food and foodstuff increased 3-4 times compared to the period when the minimum wage was 210,000 VND. Thus, although wages increased nearly four times after seven adjustments, in reality they were only enough to offset inflation for eight years. In the two years when inflation was higher than the minimum wage increase (2008 and 2011), wage increases were not enough to offset inflation.

Is the 20.8% increase significant?

From July 1, 2023, the basic salary for those receiving salaries from the budget will increase to 1.8 million VND/month, equivalent to an increase of 20.8%. This is a great effort of the Government in the context that the Vietnamese economy in particular and the world economy in general are still facing many difficulties, even recession is approaching. However, does this increase really have the meaning of improving the lives of salary earners?

In fact, if we exclude the speculative psychology factor, the salary increase is not the main cause of the increase in inflation. In other words, if the Government increases the salary of those receiving salaries from the State budget without increasing the money supply, inflation will not increase. According to the Ministry of Finance, the resources to implement the increase in the basic salary are taken from the increase in budget revenue and annual savings. Thus, the source of payment for the salary increase does not come directly from "printing money" - increasing the money supply, so in theory, the salary increase will not increase inflationary pressure in Vietnam.

According to the Ministry of Finance, increasing the basic salary is very meaningful and necessary at this time to promptly support workers to feel secure in working after the Covid-19 pandemic, in line with the aspirations of the people and the socio-economic situation of the country. Increasing salary also contributes to the overall economic development of the whole country, promoting economic development.

In 2023, with the flexible management of the Government and functional agencies, combined with the not too great impact of world prices, inflation is forecasted to not be tense. In the first months of 2023, the supply of agricultural products is abundant, prices are stable, and there are no sudden price increases. Currently, the weather is favorable, many types of vegetables are in season, so the output of leafy vegetables and spices is abundant, the wholesale price has decreased by 5% to 10%, so the direct retail price has also decreased quickly. In addition, the livestock situation is stable, diseases in livestock and poultry are controlled, so the supply of agricultural products is abundant, prices are stable, and there are no sudden price increases. Vietnam's consumer price index (CPI) this year is forecast to fluctuate between 3.8-5%.

According to economic expert, Dr. Dinh Trong Thinh, in 2023 there are many factors that help control inflation, such as: Vietnam's economy has adapted to the new situation, production and business activities have recovered strongly. Production and business have increased, goods and services are abundant, making it difficult for CPI to increase sharply. In addition, after a period of increasing interest rates, many commercial banks have reduced both deposit and lending interest rates. Lower interest rates, reduced input costs, reduced production costs, will reduce product prices. At the same time, the Ministry of Finance's decision to continue implementing policies to extend, reduce, and extend taxes and fees in 2023 as in 2022, greatly contributing to reducing input costs for businesses.

Thus, compared to the CPI increase in 2023, the basic salary increase is much higher.

In recent years, with a flexible and effective inflation control policy, wage increases have brought about certain results. Although the increase is still low, it is higher than the CPI increase rate. From there, the lives of workers have been somewhat improved. In particular, in the upcoming wage increase, the 20.8% increase will be more or less meaningful to the lives of those receiving salaries from the budget.

Economist Vu Dinh Anh: “The 20.8% increase is relatively large compared to the CPI growth rate of the past 3 years and the forecast for 2023. However, the 20.8% increase on the basis of low wages means that the lives of public sector workers have improved, but not much. The salary increase roadmap needs to set a goal in the next 5 years to bring the actual salary level of public sector workers to the level of the high average income in urban areas. The salary increase roadmap needs to be linked to administrative reform, sharply reducing the number of people receiving salaries from the State budget or originating from the State budget.”

(To be continued)

THU THUY - NGUYEN THAO - VAN PHONG

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