Promoting Labor Productivity for Sustainable Growth in Vietnam

8:18:40 AM | 12/26/2022

Vietnam's labor productivity has improved in the past years. It grew 5.8% annually on average in the 2016-2020 period, higher than the growth of 4.3% in the previous 2011-2015 period. In 2021, Vietnam's workforce productivity was 4.7%, the highest among ASEAN countries. However, Vietnam still has low workforce productivity, well below that of other countries in the region and the world.

Raising labour productivity is the key to economic development

Prerequisite for growth

According to Deputy Minister of Planning and Investment Tran Quoc Phuong, after more than 35 years of doi moi (renovation), Vietnam has obtained remarkable socioeconomic development achievements. Even during the tough time of the COVID-19 pandemic outbreak, Vietnam's economy still maintained positive growth. The change in growth pattern is also fruitful, driven toward growth quality.

Past successes have pushed Vietnam toward the goals of industrialization, modernization and higher life quality. Vietnam also identified main pillars to realize its aspirations of high growth, which emphasized continued high growth driven by labor productivity and nurtured by an innovative economy to sharpen economic competitiveness, autonomy and self-reliance.

With those requirements, increasing labor productivity is an important factor for boosting economic growth in the long term and is a prerequisite for Vietnam to narrow its development gap with other countries in the region, and move toward the goal of being an upper-income developed country by 2045.

According to the report of the Central Institute for Economic Management (CIEM), in the 2011 - 2021 period, the fundamental policy framework for improving labor productivity was applied in many groups toward macroeconomic stability and enhanced economic competitiveness. It was designed to increase technologically, innovatively and digitally driven productivity; raise the quality of human resources and specific policies that support agricultural, industrial and service sectors. Most importantly, policy thinking on new economic models and activities has been initially completed, based on labor productivity, innovation and motivation for businesses.

At the overall economic level, Vietnam's labor productivity has improved significantly, growing 2.5 times from VND70.3 million in 2011 to VND171.8 million per worker in 2021. Annual labor productivity growth in 10 years from 2011 to 2020 was 6%, with 5.5% in the 2011-2015 phase and 6.4% in the 2016-2020 phase (higher than the planned target of 5%).

However, Vietnam's labor productivity is still much lower than other countries in the region and disparity tends to widen. In agriculture, forestry and fishery, although workforce productivity is low, its growth is relatively high thanks to restructuring. Meanwhile, workforce productivity of the industrial and construction sector is low and unstable, mainly due to the participation of low value-added and labor-intensive segments, and yet to show its role of leading and promoting growth. Labor productivity of the service sector is bullish but unstable, and heavily reliant on traditional service industries.

According to key economic regions, labor productivity is uneven, with high productivity seen in some big localities (Hanoi, Da Nang, Ho Chi Minh City, Binh Duong and Ba Ria-Vung Tau), mainly driven by two key economic regions of the North and the South. Notably, workforce productivity growth tends to weaken gradually while leading localities cannot drive regional growth. Corporate workforce productivity was VND309.9 million per worker in 2020, representing a growth of 93.1% over 2011. The difference in labor productivity among business sectors is widening.

According to reports, the main barriers for companies to boost workforce productivity are uncertainty in technological investment; poor innovation capacity illustrated by management quality; a workforce that lacks necessary skills; and insufficient capital investment. In addition, institutions and policies are still incomplete, inconsistent and insufficient to undermine the coordination of solutions and determine the roles and responsibilities of central and local agencies in ensuring practical and effective implementation.

Strong institutional reform

According to Deputy Minister Tran Quoc Phuong, to boost workforce productivity in the face of the above bottlenecks, in the coming time, it is necessary to drastically conduct stronger institutional reform so that all resources can be mobilized, allocated and used most effectively; promote and support the private sector to become an important engine of the economy; selectively attract FDI, with priority for high-quality projects, and accelerate more effective labor restructuring.

In addition, there is a need to continue intensive international economic integration, and participate in global trade flows to turn such flows into a driving force for increased reform, competitiveness and labor productivity. It is important to foster and formulate driving forces from key economic regions and growth poles based on connectivity infrastructure, specific mechanisms and new technologies, including digital technology and innovation; prioritize the development of some potential industries; and focus on enhancing the efficiency of the labor market, establishing a strong mechanism to attract talents, expand, popularize and upgrade human resource training facilities.

It is also necessary to continue to drastically change the enforcement mechanism, encourage initiatives and movements to boost national production, enhance State governance capacity and national and corporate competitiveness, improve the quality of the business environment and build a new mechanism to enable all employees to have opportunities to maximize their capacity to contribute to common economic prosperity.

Mr. Dang Duc Anh
Deputy Director of the Central Institute for Economic Management (CIEM)

The National Program for Increasing Labor Productivity regards labor productivity as a driving force and a foundation for rapid and sustainable growth based on the effective capture of opportunities of the Fourth Industrial Revolution, digital transformation and regional connectivity and regional development, thus enhancing competitiveness, independence, autonomy and resilience of the economy.
The program is expected to set a target average labor productivity growth of 6.5-7.0% annually. Labor productivity growth of key economic regions and five big cities is higher than the national median. Science, technology and innovation will account for more share to growth. Vietnam will lead ASEAN in labor productivity growth by 2030. The country’s Global Innovation Index (GII) of WIPO and E-Government Development Index (EGDI) of the United Nations will respectively stand in the Top 40 and Top 60 countries.
To achieve these objectives, the program offers specific groups of solutions relating to mechanisms and policies to carry out national labor productivity movements; stabilize the macro-economy and boost national competitiveness; speed up innovation and digital transformation; mobilize resources; improve education and training; raise the quality of human resources; reinforce regional development and regional connectivity; launch industry-based solutions; and develop international cooperation.

Mr. Gregogy Leon
Director of Economic Growth and Governance Office, USAID

Labor productivity is a main growth driver. Vietnam’s labor productivity is low relative to many countries in the region. One of the main reasons is that domestic enterprises are still labor-intensive and they are finding it hard to access and apply know-how, foster corporate governance and improve product quality, which directly affects the business performance and competitiveness of small and medium-sized enterprises (SMEs) in the region and the world.
USAID is working with the Ministry of Planning and Investment to support Vietnamese businesses, including women-owned and disadvantaged groups, through access to technology and capital to enhance competitiveness, through direct business activities, market activities and administrative reforms, as well as solutions that impact entire growth models of enterprises to help change business models to transform households to full-fledged companies and scale up small companies. Then, consistent solutions to increase labor productivity, improve human resource quality and foster technological application to industries will be introduced.

By Quynh Chi, Vietnam Business Forum