Policy issues

Viet Nam to consider grade, position-based salaries in public sector while gradually reforming social insurance

Deputy Prime Minister Vuong Dinh Hue consulted ILO Viet Nam on wage and social insurance policies on 8 November as part of the development of country’s reform.

News | 09 November 2017
HANOI (ILO News) – Deputy Prime Minister Vuong Dinh Hue had a consultation meeting with ILO Viet Nam on 8 November on the country’s major wage and social insurance reform which will be submitted for endorsement in May next year.

The Deputy Prime Minister, who is head of the Central Steering Committee for reform of wage and social insurance policies, listened to international experiences and recommendations from ILO Viet Nam Director Chang-Hee Lee and ILO senior social protection specialist Nuno Cunha.

Recognizing the complexity of the policy challenges of reforming public and private sector wage policies as well as social insurance system, he said: “It’s sensitive because it touches upon almost everybody in the working age and also in retirement.”

Viet Nam has gone through several wage reforms in 1960, 1985, 1993 and some further adjustments in 2004.

Last October, the Party issued Resolution No 18 and 19 on the continued reform to improve the effectiveness of public institutions, which include nearly 60,000 organizations employing 2.6 million workers. The Party set the goals to reduce 10 per cent of the permanent posts by 2021.

“By its nature, not only in Viet Nam, but also in all other countries, the national policies on wages and social insurance are one of the most controversial policy issues, on which it is not easy for the Government, trade unions and employers to reach a consensus,” said the ILO Viet Nam Director.

Viet Nam made a significant progress in minimum wage fixing with the establishment of the National Wage Council in 2013. However, according to the head of ILO Viet Nam, the country still needs to improve wage statistics and strengthen analytical capacity of the Council’s Secretariat for measuring impacts of minimum wage adjustments on wages and employment.

“Consideration can be given to participation of independent experts in the minimum wage fixing process, if deemed necessary,” he said.

Lee also highlighted the important role of collective bargaining as a main wage fixing mechanism in market economies, which is underdeveloped in Viet Nam. He noted that Viet Nam should give a priority to ratification and application of the ILO Convention on Right to Organize and Collective Bargaining (Convention 98), among other conventions, which is required for the ratification of EU-Viet Nam Free Trade Agreement.

In public sector wage reform, the ILO Viet Nam Director emphasized the appropriate scope of the sector, long-term plan for wage parity between the public and private sector as the key issues for the country.

“Complicated multipliers (coefficients) can be a root cause of the wage problems in public sector,” he said, explaining that the current coefficient system blurs wage differentials between different grades, undermines the hierarchy, lacks the function of wages, and makes it difficult to control total wage bill.

Instead, he recommended establishing basic salary per grade for civil servants and that allowances be expressed in absolute amount whereas coefficients may be used to reflect regional differentials.

Social insurance reform

ILO’s senior specialist Nuno Cunha emphasized the complexity and importance of this topic.

“Realities like a fast ageing society and the predominance of informal economy create serious challenges for the country. However Viet Nam is not alone and it is important to understand that reforms are a normal component of the life of all social security systems,” he said, noting that it is important to ensure a gradual implementation of reforms and to build on the results already achieved.

Decisions should be evidence-based and therefore it is important to take into consideration the results of actuarial studies, but also the experience of other countries in reforming their systems. As some measures will have big impacts on workers and businesses, consultation and communication is essential to guarantee a successful reform, said Cunha.

“The expansion of health insurance in Viet Nam shows that extending social insurance coverage is possible. Other countries like Thailand, China or Timor Lester were able to do the same for pensions,” he added.

According to the ILO expert, Viet Nam should think out of the box, build on their own experience, broaden the financial allocations to social protection, but also simplify procedures for registration of small and medium-sized enterprises and household businesses.

The core of the success in expanding coverage is the coordination between differentce services, he explained. “In Latin America for instance, the development of a joint tax-social security contribution was essential to promote the inclusion of micro and small enterprises in the system.”

Expressing his appreciation towards the ILO’s recommendations, Deputy Prime Minister Hue asked ILO Viet Nam to continue providing international experience and concrete proposals on wages and social insurance in the coming time to support the country’s important reform.

“I have the confidence in ILO’s technical supports,” he said.