Vietnam Business Channel

World Bank report: Vietnam’s labor costs are highest among ASEAN developing countries

The World Bank has just released a new report on enhancing enterprise competitiveness and enhancing small and medium-sized enterprise (SME) linkages and the cost of labor across Southeast Asia, and finds that Vietnam’s labor costs are the highest among comparative developing countries.

The World Bank defines labor costs for each firm as the cost of all payments to all workers divided by the number of workers. It says wage costs about $2,739 per worker for the median Vietnamese firm, about twice as high as in Laos, Myanmar and Malaysia, and about 30 to 45 percent higher than in Cambodia, Thailand and the Philippines.

While Vietnam’s labor costs are higher than its peers in the region, they seem in line with productivity levels and thus do not seem to be a major obstacle to competitiveness, the report says.

The average manufacturing firm in Vietnam produces about $10,500 worth of value-added per worker per year, higher than in most countries in Southeast Asia. It is around $10,000 in Malaysia, and $5,000 in Cambodia. Vietnam’s relatively high value appears to be partly driven by high and growing use of capital.

The report also breaks down labor productivity in the country by region.

• The north-central and central coastal regions of Vietnam have the highest productivity – of almost $16,000 value addition per worker

• The southeast comes in second at $14,000 value addition per worker

• The Red River Delta region has a productivity of only $7,000, and it is even lower in the Mekong River Delta at around $6,000.

It also said that foreign-owned firms are generally more productive than domestic firms, which can be explained by their easier access to technology and finance through their parent companies.

The World Bank report also notes that capital productivity is low in Vietnam. The ratio of sales to value capital in Vietnam is around 160%, lower than in any of its peers in Southeast Asia. The bank’s data confirms that capital might not be used very efficiently in Vietnam.