Vietnam labour market in the context of regional and international integration

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Abstract: In recent years, the process of international economic integration of Vietnam has achieved solid results. Vietnam became a member of the World Trade Organization in 2007 and participated in 16 Free Trade Agreements (FTA). In particular, participation in the Strategic Partnership Agreement Trans-Pacific (TPP), the FTA with the European Union (EU) and the formation of the ASEAN Economic Community in 2015 marked an important turning point of Vietnam economy in integrating into the regional and the world economy. Vietnam’s labor market will face opportunities and challenges of integration. It will also express its strengths and weaknesses before regional and international competition.

Keywords: labor market, integration, ASEAN, international.

  1. CONTEXT

The Strategic Partnership Agreement Trans-Pacific (TPP) had been signed on 4 February 2016 in New Zealand by 12 member countries[1] including Vietnam. The economic scale of TPP accounts for 40% of GDP and 30% of global trade. TPP is the first FTA having separate chapter on labour that Vietnam participates, including: (i) commitment to enforce ILO obligations as members and not use labour standards for trade protection purposes; (ii) ensure the rights of workers in the 1998 ILO Declaration, including: Freedom of association and effective implementation of the collective bargaining rights, elimination of all forms of forced or compulsory labour, effective elimination of child labour and prohibition of the worst forms of child labour, elimination of discrimination in the work place; (iii) ensure conditions of minimum wages, working time and occupational safety and health. The labour provisions in the TPP will create “pressure” in the implementation of policies and labour standards in developing countries, including Vietnam. Vietnam is the least developed countries in the TPP and is the exporter based on labour – intensive commodities with the advantage of cheap labour. In short term, Vietnam will face with the adverse impacts in the international competition when adopting high standards of the TPP on labour.

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Regarding to the formation of the ASEAN Community, labour market of member countries, including Vietnam will benefit from the implementation of measures to build a unified production base of ASEAN, competitive economic region, equitable economic development and global economic integration. Labour market of member countries will also have the opportunity to develop significantly in 12 priority integration sectors, including: 7 manufacturing sectors are agro-based goods, fisheries, rubber-based goods, wood-based products, textiles and clothing, electronics goods, automotive products; 2 service sectors are air transport and e-ASEAN (or e-commerce); and 2 service-manufacturing sectors are health care products and ICT equipment, logistics. In particular, the free movement of high skilled workers between member countries will bring many benefits but can also cause intense competition for skilled worker among ASEAN member countries.

Vietnam has participated in 16 economic-free trade agreements, including: Vietnam – US Bilateral Trade Agreement (BTA) 2000,  Vietnam – Japan Economic Partnership Agreement (VJEPA) 2008 and Vietnam – Chile Free Trade Agreement (FTA) 2011 and multilateral agreements such as FTAs between ASEAN and partners such as China in 2004, Korea in 2006, Japan in 2008, Australia and New Zealand in 2009, India in 2009, EU and Korean in 2015. Generally, these agreements mainly focus on the commitment on goods and services free trade agreement, it has a strong impact on the demand of labour recruitment, job structure, working conditions and wage/ salary trends.

  1. VIETNAM LABOUR MARKET AND INTEGRATION
  2. Opportunities and strengths

1.1. Opportunities

Increasing jobs and improving the quality of jobs. The further world economic integration will attract more investment and technology from outside, participate further into the global production and supply chain, expand labour mobility channels. Integration brings the opportunity for occupational development together with the implementation of basic rights of labour, social dialogue mechanism and ensuring social protection, it will contribute significantly to improve the quality of employment in Vietnam.

According to ILO, by 2020, when participating in the ASEAN Economic Community (AEC), Vietnam will increase by 6 million jobs compare to the baseline scenario, accounting for 10% of the total added jobs of ASEAN (60 million), which concentrates mainly in rice-producing sector, construction, transport, textiles and clothing and food processing.

Figure 1: Changes in employment by sectors, AEC’s scenario compared to the baseline scenario, 2025 (in thousands)

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Source: ILO&ADB, 2015

Changing positively in employment structure. The flow of investment and technology will promote the economic restructuring from sectors with low productivity to high productivity and participate more in the value chain. Vietnam has the opportunity to attract high qualified labour like doctors from Singapore, engineers from Korea or Japan, project managers from Philippines, etc, in order to offset the shortage in high quality labour, to promote investment, growth and to narrow the development gap. The participation in the global production network will create jobs with a high technological level (IT and internet, multimodal transport and logistics service, automation, etc.), high salary and good working condition.

Creating favorable conditions for innovating education – training system. In order to ensure good integration of Vietnamese labour into labour market, the education – training system is under pressure and conditions to innovate basically and comprehensively to meet the demand on skilled labour of domestic and international labour market in terms of both quality and quantity, occupational – qualification structures, quality of graduates.

Creating motivation to reform Vietnam labour market and effectively connect with the world. Integration facilitates to reform Vietnam labour market towards security-flexibility, connecting with international labour market and promoting skilled workers mobility. In the near future, workers in 8 occupational groups which are free to move in ASEAN countries through skill recognition agreements of: engineering, architecture,  accounting, survey, doctor, dentist, nursing, tourism with a good command of English will be able to move freely with better job opportunities and contribute more to the national development.

Figure 2: Forecast of 10 sectors have the highest demand on jobs under AEC scenario 2010 – 2025 (in thousands)

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Source:  ILO&ADB, 2015

Currently, there are about 500 thousand Vietnamese workers working in more than 40 countries and territories. Besides that, Vietnam also attracts an increasing number of foreign experts, managers to work. By 2015, there were 83.6 thousand foreign workers in Vietnam, mostly from China (31%), Korea (18%), Taiwan (13%), Japan (10%), and many European, American, African and Asian countries.

1.2. Strengths

Comparing to ASEAN countries, Vietnam, the degree of integration of Vietnam is the most extensive and most positive impact on labour market. The extensive integration encourages both skilled and un-skilled workers to participate in the global supply chain and they will have more opportunities in the future. Free trade, growth of export and service also promotes the application of new technologies and the establishment of new organizational production forms. This will create opportunities for developing employment in high-tech industries, with high added value and global competitiveness. Along with the extensive integration, legal system and policies on employment, labour market is more and more completed which will be an important legal basis creating significant changes in the development of Vietnam labour market towards the goal of decent work and productivity for all workers.

Along with the integration process, the National Wages Council operates stably with practical contents which initially create remarkable changes in society on dialogue and negotiation on wages.

Vietnam is in ”golden population structure” period with a young and abundant labour force. By 2015, labour force of Vietnam reached nearly 54.79 million people, of which, youth (aged 15-29) accounted for nearly 30% of labour force. In the period 2005 – 2015, labour force increased at an average rate of 2.11%/ year, which was more than 2 times of the population growth rate, reflecting ”the golden population structure benefit”. With this structure, we have a big advantage compared to other regional countries such as Thailand, Malaysia, Singapore.

Vietnamese workers are skillful, hardworking, desire to learn, receptive and advantageous in some industries. Vietnamese workers are evaluated as good at basic skills such as reading, writing, calculating. Vietnam also has the advatage of experts in some occupational groups such as mathematics, phusics, IT, doctor, nurse, architect, etc.

Vietnam has focused on developing labour market associated with solving social issues and supporting vulnerable worker groups. Policies on employment support, preferential credits for small and medium-sized enterprises, social insurance, unemployment insurance, etc have contributed to poverty reduction, education and job creation for the vulnerable workers. Extensive integration with bilateral or multilateral commitments and agreements on labour and social affairs between regional countries and international countries will continuously create the extensive social protection network connecting with the systems of other countries.

  1. Threats and weaknesses

2.1. Threats

Domestic legalization, complying with the principles and standards of integration. The commitments through the signing of Agreement set out requirements for the conformity between national legal system and international principles and standards to ensure transparency, accountability according to the international commitments. Therefore, there were requirements on revising and guiding relevant laws to compliance with international rules (for example amending Labour Code, the Law on Employment, the Law on Vietnamese workers working overseas under contract, the Law on Social Insurance, etc; guiding new law such as Occupational Education Law, Occupational Health and Safety Law). The integration environment created big changes on labour market in terms of operational principle and organization forms. Accordingly, the State management agencies, enterprises and workers of Vietnam should fully prepared to adapt and work effectively in multicultural and multinational environment.

The quality of human resources in Vietnam is at low level of international ladder. The proportion of trained workers with certificates/ degrees only reached 20.5% in 2015, which was equal to approximately 11 million people. There was a lack of skilled and high-level technical workers in Vietnam. Particularly, Vietnamese workers were weak and lack of foreign languages skills and soft skills such as teamwork, communication, industrial manners (responsibility and professional ethics) and were bad at labour discipline. According to the assessment of World Bank, the human resources quality of Vietnam was only 3.79 points (out of 10), ranked 11th among 12 ASIAN countries in the rank; competitiveness index of Vietnam human resource was 4.3/10 points and the competitiveness of Vietnam’s economy ranked 56/133 ranked countries (WB, 2015).

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Due to low quality of human resources, Vietnamese workers mostly worked in labour – Intensive industries, low wage industries. Employment of key sectors of industrialization – modernization accounted for low proportion, for example some key industries such as manufacturing and processing industry, electronics – telecommunications, new energy and renewable energy accounted for only 21% of total employment. The development of enterprises operating in manufacturing and processing industries was uneven with the breakthrough concentrated in export enterprises leading by FDI group. Domestic enterprises faced with many difficulties in the integration and business environment, access to resources and finding market for exporting. The competitiveness of Vietnamese labour was low. The labour productivity was also very low, which was 1/18 of Singapore, 1/6.5 of Malaysia, 1/3 of Thailand and China. In ASEAN, the labour productivity of Vietnam was only higher than Myanmar, Cambodia and approximately Lao.

Threats in attracting and retaining talents. Vietnam is facing with the shortage of high skill workers because of the lack of attractiveness of salaries and environment, working conditions. Good professional positions, especially in FDI enterprises are often taken by foreign workers because they have the advantage of foreign languages, professional manner and industrial style.

The 2014 survey results of INSEAD Business School (France), Human Capital Leadership Institute HCLI (Singapore) and Adecco Recruitment Service Group (Switzerland) showed that: Vietnam ranked 75th out of 93 countries on Global Talent Competitiveness Index (GTCI), which reflected the ranking based on the ability to develop, attract and retain talents, as well as the paradox between available professional positions and increasing unemployment rate. According to this report, Vietnam had quite high score in the global knowledge – based skills, but had low performance for the development of talents through formal education system.

Some new forms of risk appear. Integration will increase the risk of losing jobs for low competitive enterprises and industries (small and medium-sized enterprises, livestock industry, textiles and garment industry, etc.) or risks of unsafe working environment for certain vulnerable worker groups, while the social insurance and social security systems are weak and shortage (the coverage degree of Social Insurance for workers is only 20% of labour force, there is no contribution – to – benefit mechanism or forwarding social insurance for both Vietnamese and foreign migrant workers). Especially, workers in State owned enterprises which are protected more will have risk of losing jobs en masse leading to challenges for Social Protection. There is around 50% of Vietnamese labour force participating in the global supply chain (this number is increasing significantly in the future), however most of them are unskilled workers and often work in informal sector or small production facilities with unsafe working condition, low wage, weak industrial relation, lack of social security. In recent years, the number of occupational accidents increased with average rate of 2.6% in the period 2007 – 2014 which happened seriously in mining, construction, metal processing, engineering, machine and equipment operation sectors. In the coming period, the strong development of small and medium sized enterprises with backward technology or the lack of controlling on importing and using machine, technology, new material will have unpredictable risks of occupational health and safety.

2.2. Weaknesses

Labour market is fragmented between sectors, and sizes. In 2015, the proportion of waged workers reached nearly 40%, which was still low compared with other regional countries (in 2013: Campuchia was 40.6%, Indonesia 46.5%, Phillipines 58.2%, Thailand 41.4%, Malaysia 75%, Singapore 85.1%, according to ADB and ILO, 2014). Vietnam was a country having backward labour structure in ASEAN with the agricultural labour rate ranking 4th (behind Laos, Cambodia and Myanmar) – there was about 45% of labour force still working in agricultural sector with low productivity and income and nearl 2/3 labour force did vulnerable jobs.

According to the Global Competitiveness Report 2015 – 2016 announced by World Economic Forum (WEF), the global competitiveness index (GCI) of Vietnam was 4.3/7, ranked 56/140 surveyed countries on 12 competitiveness criteria including: legal institute, infrastructure, health and education, market size, macroeconomic environment, financial market development, labour market efficiency, etc, Vietnam was only 3.8/7 points on higher training and education, ranked 95/140; 4.4/7 points on labour market effectiveness, ranked 52/140; 3.3/7 points on the readiness of technology, ranked 92/140.

Industrial relation in enterprises is not harmonious, progressive and stable. The management of labour market is weak. Dialogue and collective bargaining, collective labour agreements, etc, have not been implemented or only superficially. The number of labour disputes and strikes cases are still significant and complex. The role of trade union is not well promoted while the capacity for mediation and arbitration is weak.

Infrastructure of labour market is inadequate. The System for forecasting and information of labour market, employment service system and vocational training have not met the requirement of labour market. The consultancy, vocational guidance are ineffective leading to limitations in the ramification of students after lower and upper secondary school.

The readiness of integration and participation of enterprises, employees is slow. The readiness level for integration and labour market management capacity to adapt with regional and international integration conditions is limited in terms of institutional and administrative procedure, human resources and inspectorate. Most of enterprises do not understand about contents of TPP, FTA; 76% enterprises did not know or not understand about AEC, 94% did not know about the negotiated contents in AEC, 63% did not understand about opportunities and challenges when participating in AEC. 28% of asked final year students did not know about AEC. For students who knew about AEC, there was 81% of them thought that the biggest chanllange came from foreign language (interviewed 240 final year students in 5 Universities in Hochiminh City, Feb/2016).

III. POLICY IMPLICATIONS

Firstly, completing the labour – social affairs institutions according to regional and international standards. Actively researching, signing on ILO fundamental Conventions (particularly 3 fundamental Conventions on Freedom of Association and Collective Bargaining of employees and employers, Elimination of all Forms of Forced and Compulsory Labour). Domestically legalizing international treaties, standards and commitments on labour – social affairs that Vietnam is a member. Applying the approach and criteria for evaluation of labour – social affairs in accordance with regional and international practice. Actively forecasting, timely solving labour – social issues arising during the development process, the implementation of international commitments. Integrating gender equality in building and completing labour – social affairs institution upon the request of international integration.

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Secondly, strengthening communication to disseminate knowledge and raise awareness. Propagating, disseminating policies on international integration in the field of labour – social affairs via mass media; building electronic portal of labour – social affairs international integration. Organizing training sections to provide knowledge of international integration in the field of labour – social affairs in Ministries, agencies at central, local and enterprises in order to raise awareness about the needs, content, opportunities and threats in international integration, in the implementation of international commitments, to create consensus and strengthen accountability, to have unified action to implement activities and international cooperation.

Thirdly, improving human resources quality will be a decisive factor in the success of integration. Focus on: (i) Innovating training, in which focusing to identify training structure; completing training institution, linking training with the demand of labour market and the participation of enterprises; strengthening the cooperation, participating in “international or regional value chain”, etc; training according to the regional and international competency standard; (ii) Building and completing the national professional skill standard system in line with international standards, convert to appropriate capacity standard system; organizing to evaluate and certify the national professional skill certificate for employees. Implementing cooperative activities to assess and certify professional skills between Vietnam and ASEAN countries.

Fourthly, completing and developing the domestic labour market. Effectively connecting demand and supply. Well organizing labour market information system, incliding domestic market to introduce and connect domestic jobs and overseas market. In particular, strengthening and improving the quality of labour demand forecast. Renewing and enhancing the vocational guidance work, ensuring efficient ramification of students from lower and upper secondary schools. Reorganizing and improving the capacity of the employment service centre system in order to enhance linking, sharing information, supporting each other in providing and recruiting workers for enterprises. Establishing the National Employment Council by professional groups (including representatives of enterprises, professional association, trade union, authorities at all levels, training institutions, research institutes, etc), in short term prioritizing some occupations which are potential for developing significantly or under big impact of international integration (such as livestock breeding, vegetable cultivation, footwear, textile and garment, electronics, etc); the Council is responsible for assessing the ability to develop, the demand for labour in terms of quantity, structure, quality and to propose training demand associated with industrial development policies.

Fifthly, pursuing the objectives of decent work. Focusing on 4 pillars of decent work to ensure rights and voices of workers, employment opportunities, social protection and social dialogue mechanism. The urgent tasks include: developing employment and career opportunities; actively building policies, measures to protect the safety of workers; encouraging the study and dissemination of initiatives to improve working conditions, increase productivity and product quality; promoting the comprehensive capacity of enterprises in self-improving working conditions, ensure occupational health and safety; the minimum wage policy ensures minimum living standards of workers; applying efficient wage models in wage bargaining in some sectors with rapid growth and high labour productivity; integrating gender equality in all labour – employment objectives.

Sixthly, developing harmonious, stable and progressive industrial relation. Building strong unions at grassroots level. Respecting and protecting rights of employees in the establishment and participation in workers’ organizations at enterprises. Accelerating the implementation of the right to true collectively bargain. Improving the capacity of labour inspection agencies in receiving and processing information, handling with labour disputes in order to meet the commitments in the FTA.

Seventhly, promoting safe and effective labour migration. Supporting labour migration (remove administrative barriers, create the seamless in basic social services, connect unemployment insurance, social insurance and health insurance, etc.). For Vietnamese workers working oversea under contract, there is a need of overcome some issues: i) labour escape (ensure workers returning home as scheduled) and well reintergrate into labour market; ii) linking and building social protection network; iii) safe foreign remittances and effective use; iv) reducing the negative in recruiment.

Eighthly, strengthening the implementation of social protection policies. Expanding the beneficiaries of social protection policies, building social protection floor and network to protect workers when falling into disadvantaged or vulnerable circumstances. Continuing to complete appropriate social protection institutional policy in line with international practice in the context of population aging.

Ass.Prof.Dr. Nguyen Ba Ngoc, MA. Trinh Thu Nga, MA. Dang Do Quyen

Institute of Labour Science and Social Affairs

[1] Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA and Vietnam