How does a salary increase affect things? Salary increase for officers, salary increase for teachers.

Over the past three years, the devastating Covid-19 pandemic has caused the global economy , and Vietnam's economy in particular, to face the risk of severe recession. Therefore, Resolution No. 27-NQ/TW dated May 21, 2018, of the Seventh Plenum of the Central Committee of the Communist Party of Vietnam (12th term) on reforming salary policies for cadres, civil servants, public employees, armed forces personnel, and enterprise workers could not be implemented. However, the National Assembly has decided to increase salaries by 20.8% from July 1, 2023, for those receiving salaries from the state budget. Pensioners will also receive a corresponding increase. This is considered a significant effort by the Government in the context of the numerous difficulties still facing our economy.

With the aim of reflecting the practical effectiveness of the salary increase roadmap for those receiving salaries from the state budget, the impacts of salary increases on society, and offering recommendations and solutions to contribute to building a highly effective salary policy, the People's Army Newspaper Online is organizing a special feature on "Salary - Policy and Practice".

This paper focuses on three issues: How does a wage increase affect the lives of workers receiving salaries from the state budget? How does a wage increase for workers receiving salaries from the state budget affect the lives of farmers—a group that may be negatively impacted by not receiving a wage increase, while market prices may rise due to the wage increase effect? From there, it seeks solutions to harmonize wage policies between those receiving salaries from the state budget and farmers; and solutions to address existing problems in wage policy, so that this policy truly becomes a driving force for development.

Lesson 1: "The Refrain of Wages and Prices"

Wage increases mean increased income for workers. However, in the past, repeated wage increases have had the opposite effect. Before wages increased, prices rose faster than the wage increase. Therefore, the "wage-price" dynamic has at times become a "sad" refrain for those receiving salaries from the state budget.

Stages of reform

Since the establishment 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 took place between 1960 and 1984. On July 5, 1960, the Government Council issued Decree No. 25/CP regulating the salary system for the administrative and public service sector. Accordingly, the salary system for officials and employees working in administrative and public service agencies was implemented according to the following principles: The salary of leading officials was higher than that of lower-level officials and employees; the salary for positions requiring high technical and professional skills was higher than that for positions requiring simpler technical and professional skills; the salary for workers in difficult and health-hazardous conditions was higher than that for workers in normal conditions; officials and employees were paid according to their current position, and their salary grade changed when their position changed. The minimum wage according to Decree No. 25/CP was 27.3 dong. The salary scale for positions is designed according to a minimum-average-maximum salary ratio of 1 - 2.56 - 7.03. Specifically, a level 1 service employee receives a salary of 27.3 dong, a level 1 light industry engineer receives a salary of 70 dong, and those holding positions equivalent to ministers receive a salary of 192 dong.

The second wage reform was implemented during the period 1985-1992. Resolution of the 8th Central Committee Conference, 5th term (June 1985) and Decree No. 235/HĐBT dated September 18, 1985, of the Council of Ministers (now the Government) on improving the wage system for workers, civil servants, and the armed forces led to a major reform of prices, wages, and currency.

Decree No. 235/HĐBT stipulates the salary scales and tables for workers, employees, and management staff of enterprises and companies, and the positional salary scale for officials and employees in public service organizations and state management agencies. The principle of salary is that the salary is based on the work performed and the position held.

Article 2 of Decree No. 235/HĐBT stipulates: The minimum wage is 220 dong per month. This wage corresponds to the price level in areas with the lowest cost of living. When prices change or in areas with a higher cost of living, the wage will be supplemented with a cost of living difference allowance. The salary scale for positions is designed according to the minimum - average - maximum wage ratio of 1 - 1.32 - 3.5. Accordingly, a level 1 service staff member has a salary of 220 dong, a level 1 engineer has a salary of 290 dong, and those holding positions equivalent to ministers have a salary of 770 dong.

The period from 1993 to 2002 saw the third wage reform. The goal of Vietnam's wage policy reform during this period was to make wages a measure of the value of labor, applicable to all economic sectors with market-based labor relations. Government Decree No. 25/CP stipulated a minimum wage of 120,000 VND/month in 1993. On January 21, 1997, the Government issued Decree No. 06/CP, raising the minimum wage to 144,000 VND/month. Subsequently, on December 15, 1999, the Government issued Decree No. 175/1999/ND-CP, setting the minimum wage at 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 between 2003 and 2020. Decree No. 204/2004/ND-CP dated December 14, 2004, stipulated that salaries must be linked to the performance of officials, civil servants, and public employees, and to the source of salary payment (from the state budget or support and from other revenue sources as prescribed by law) of the agency or unit. Accordingly, salaries had to be comprehensively changed for all categories of workers; with a minimum wage of 310,000 VND/month. Subsequently, 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 it to 450,000 VND/month.

Since 2013, the minimum wage used to calculate salaries for public sector workers has been changed to a base salary. On November 9, 2016, the National Assembly issued a Resolution on the 5-year financial plan, which included a provision to increase the average minimum base salary by 7% per year during the 2016-2020 period. As of July 1, 2018, the base salary for public sector workers reached VND 1,390,000 per month.

The practical experience of wage policy reform, especially from 1992 to the present, shows that the efforts of the entire political system have yielded many positive results. The Vietnamese Party and State have shown early concern and made many efforts in reforming wages for workers, even during periods of war and embargo. However, despite the significant achievements in wage reform, compared to the needs of workers, the demands of national development, and international integration, the wage policy still has many shortcomings and limitations.

Salaries "follow" prices.

Of the four wage reforms, the second (1985-1992) witnessed a period of hyperinflation. In 1986, inflation reached 774.7%, causing economic turmoil. Agricultural prices alone increased by 2,000% compared to 1976. In 1987, inflation was 323.1%. In 1988, inflation surged again to 393%. It only fell below 100% (34.7%) in 1989.

The hyperinflation during the wage reform period of 1985-1992 rendered wage increases meaningless. In fact, it became a source of anxiety for those receiving salaries.

Another prime example of wages lagging behind prices is the period from 2004 to 2012. Over eight years, the minimum wage was adjusted seven times, from 210,000 VND/month (2004) to 830,000 VND (2012), nearly four times. On average, the increase was about 15% per year. However, during those seven minimum wage adjustments, the inflation rate also increased by approximately 2.5 to 3 times. Notably, during that period, there were two years with double-digit inflation, significantly higher than the minimum wage increase. In 2008, the minimum wage was adjusted from 450,000 VND to 540,000 VND, a 20% increase, while inflation reached 22.97%. Similarly, on May 1, 2011, the minimum wage increased by 100,000 VND (13.7%), but the inflation rate for the first nine months of 2011 reached 18.16%.

Generally speaking, during the period 2004-2012, the total increase in wages was still slightly higher than the inflation rate. However, the living standards of wage earners did not improve significantly. The reason is that the living standards of wage earners are most heavily influenced by the food and beverage group. Meanwhile, in the "basket of goods" used to calculate the consumer price index, the increase in the food and beverage group was always the highest, while items such as electronics and home appliances decreased sharply, and clothing saw an average increase. For example, in 2003, 1 kg of rice cost about 4,000-5,000 VND, and by 2012, it fluctuated between 17,000-20,000 VND, an increase of about four times. Overall, the price of food and beverages increased 3-4 times compared to the period when the minimum wage was 210,000 VND. Thus, although wages increased nearly fourfold after seven adjustments, they were only enough to offset inflation over eight years. In the two years when inflation exceeded the minimum wage increase (2008 and 2011), the wage increase was insufficient to compensate for inflation.

What does a 20.8% increase mean?

From July 1st, 2023, the basic salary for those receiving salaries from the state budget will increase to 1.8 million VND/month, equivalent to a 20.8% increase. This is a significant effort by the Government in the context of the Vietnamese economy in particular, and the global economy in general, still facing many difficulties, even an impending recession. However, does this increase truly mean an improvement in the lives of those receiving salaries?

In fact, if we exclude the psychological factor of speculation, salary increases are not the main cause of inflation. In other words, if the government increases salaries for those receiving state budget salaries without increasing the money supply, inflation will not rise. According to the Ministry of Finance, the resources to implement the increase in the basic salary come from increased budget revenue and savings in annual expenditures. Thus, the funds for the salary increase do not come directly from "printing money"—increasing the money supply—so, nominally, the salary increase will not increase inflationary pressure in Vietnam.

According to the Ministry of Finance, increasing the basic salary is very significant and necessary at this time to promptly support workers so they can work with peace of mind after the Covid-19 pandemic, in line with the aspirations of the people and the socio-economic situation of the country. The salary increase also contributes to the overall economic development of the country and promotes economic growth.

In 2023, thanks to the flexible management of the Government and relevant agencies, coupled with the relatively stable impact of global prices, inflation is not expected to be severe. In the early months of 2023, the supply of agricultural products was abundant, prices were stable, and there were no sudden price increases. Currently, favorable weather conditions and the seasonal availability of leafy vegetables and herbs have resulted in abundant production, with wholesale prices decreasing by 5% to 10%, leading to a rapid decrease in retail prices. Furthermore, the stable livestock situation and the control of animal diseases have ensured an abundant supply of agricultural products and stable prices, preventing sudden price surges. Vietnam's Consumer Price Index (CPI) this year is projected to fluctuate between 3.8% and 5%.

According to economist Dr. Dinh Trong Thinh, 2023 presented several factors that helped control inflation, such as: the Vietnamese economy had adapted to the new situation, and production and business activities had recovered strongly. Increased production and business, along with abundant goods and services, made it difficult for the CPI to rise sharply. In addition, after a period of interest rate increases, many commercial banks reduced both deposit and lending rates. Lower interest rates, reduced input costs, and lower production costs will lead to lower product prices. Furthermore, the Ministry of Finance's decision to continue implementing policies to postpone, reduce, and extend various taxes and fees in 2023, as applied in 2022, greatly contributed to reducing input costs for businesses.

Thus, compared to the CPI increase in 2023, the increase in the base salary is considerably higher.

In recent years, with flexible and effective inflation control policies, wage increases have yielded certain positive results. Although the increase is still low, it has been higher than the rate of increase in the Consumer Price Index (CPI). This has somewhat improved the lives of workers. In particular, the upcoming 20.8% wage increase will have a significant impact on the lives of those receiving salaries from the state budget.

Economist Vu Dinh Anh: “The 20.8% increase is relatively large compared to the CPI growth rate over the past three years and the projected rate for 2023. However, a 20.8% increase on a foundation of low wages means that while the living standards of public sector workers have improved, the improvement is not significant. The wage increase roadmap needs to aim to bring the real wage level of public sector workers to the upper-middle income level in urban areas within the next five years. The wage increase roadmap needs to be linked to administrative reform, significantly reducing the number of people receiving salaries from the state budget or sources originating from the state budget.”

(To be continued)

THU THUY - NGUYEN THAO - VAN PHONG

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