The changing of Vietnam’s Labour Market in the revolution of Industry 4.0
When the whole world is changing toward Industry 4.0, the Vietnam government is also trying to push more productivity as well as quality from all areas of the economy with labour-intensive sectors. This trend is significant to keep the competitiveness of the Vietnam market to attract more foreign direct investment (FDI).
Labour supply & Labor productivity in Vietnam 2019
With a huge population, Vietnam is a potential market that can provide a young labour force. Besides, the labour cost is also cheaper in comparison with other countries. These advantages together with the stable political situation are the reasons that help Vietnam can attract up to US$13.25 billion of FDI in 2019, which grows by 6% according to First Alliances 2019 Salary Guide.
According to Vietnam Briefing News, in 2017, the number of the labor force in Vietnam was 53.7 million, half of this number was the workforce between 15 and 39 years old. However, the percentage of skilled workers was just 21.5% in 2017. The number of male workers was slightly more than 50% of the whole workforce. Furthermore, the unemployment ratio in the working-age was just 2.24%.
Labor productivity is also an element that foreign companies will look at when they decide to choose one country to invest in. From 2018, Vietnam’s labor productivity has increased by 22.5%. However, this productivity has not increased relative to Vietnam’s economic growth. In the period from 2011 to 2017, the average annual productivity of the country rose 4.7%, while the annual growth of investment capital rose nearly 2 times at 9%. This number is showing that the Vietnam government needs to take more action to make sure that the productivity of Vietnam labor sources can be more competitive in the market.
In addition, because of the faster growth rate of the economy compared with labor productivity, wages are also rising faster than productivity. As mentioned in the previous part, productivity was increased by 4.7% from 2011 to 2017, while the average wages increased by 6.67%. This fact made the Vietnam labor market less attractive than before. Foreign companies are likely to move their business to countries with higher productivity.
Labor force distribution
In 2017, most of the labor resources located in rural areas with a percentage of up to 67.8%. Below areas are accounting the largest share of the labor force in Vietnam according to Vietnam Breifing reports in early 2017:
- The Red River Delta: 21.7%
- South Central Coast: 21.6%
- Mekong River Delta: 18.9%
- Southeast area: 17.1%
In the sector-wise, the majority of Vietnamese workers are still in agriculture, fishery, and forestry. However, in 2017, there was a significant transformation in labor supply from agriculture, forestry, fishery to construction, industry, and service. Therefore, the demand for skilled workers keeping increasing.
The first challenge is the lack of skilled workers because automation in Industry 4.0 can replace repetitive work with high productivity and accuracy. However, the percentage of skilled workers in 2017 was just 21.5% which leading to the main challenge of Vietnam labor sources is the lack of skilled labor force. It was reported that 40% of foreign companies in Vietnam found it hard to recruit skilled employees.
The second challenge is that Vietnamese workers have not been focusing enough on soft skills and social skills. With the impact of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement, there are more and more opportunities for job demand in Vietnam and the labor cost is forecasted to be increased. But once against, this trend also requires skilled workers with soft skills, social skills.
To overcome these challenges, the Vietnamese government has been taking more and more training and focusing on education to increase the knowledge of labor resources. Labor reformed is the key factor that keeps Vietnam growing along with the trend of Industry 4.0. Not only the government, but the corporate itself also needs to focus to do more training, attract more talent and retain the talent pool. Employees themselves also need to aware that upskill is the way to develop and contribute to the development of the whole country.
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