Minimum wage increase may impact overall employment in Laos

VIENTIANE (Vientiane Times/ANN) - A plan for a further increase of the minimum wage is being closely watched by private and state organisations in Laos because of key issues linked to its implementation.

Representatives of the Ministry of Labour and Social Welfare and the Lao Federation of Trade Union and the Lao National Chamber of Commerce and Industry sat down recently and discussed how to put in place this policy asking employers to raise the minimum wage from 900,000 kip to 1.1 million kip per month.

The raise will force each entrepreneur to spend more than 200,000 kip a month for employees with low incomes. This means that a business owner will be responsible for paying 2.4 million kip extra per annum per employee. If a business unit has 10 low-income workers, it will pay out 24 million kip more.

The net profit of employers will be affected. Only businesses that have good liquidity may not face any problems.

This is the fourth time the government has required all entrepreneurs to support its plan to raise minimum wages. The first increase was in 1991. In 2012, the government raised the minimum wage from 348,000 kip a month to 626,000 kip, and in 2015, it was further hiked to 900,000 kip a month.

Compared to the current living costs, the planned minimum wage increase of 200,000 kip is still minor but larger than the salary increase offered to general government officials which was previously raised by only 116,500 kip per month.

The increase of the minimum wage is needed to improve the living conditions of workers but there needs to be a thorough study of its impacts.

We can see some benefits of the proposed policy. Workers will be happier if they get paid more. The role of the State in taking care of low-income workers will be promoted.

At the same time, the government will be able to collect income tax from workers who have a salary of more than 1.1 million kip. They will have to pay 5 percent of their income as tax, according to the amended Tax Law.

In the past, tax authorities could not enforce this regulation with low-income earners. Some employers also used this loophole to employ more people.     

However, authorities must be more careful about the labour market because it could possibly lead to more unemployment. Employers can follow the direction of the authority by increasing the wage according to the demands of the authorities, but they may consider cutting jobs so that the salary of the fired workers can be paid to other employees. This is an issue we need to think about.  

We all know that it is not easy for every stakeholder to reach consensus on an increase of the minimum wage. The State and private sector have to hold many rounds of talks. If many employers play the game of cutting jobs, this will impact the labour market and possibly create social problems.   

This year, the government has set a target of limiting unemployment to only 2 percent, up from 1.4 percent in the past year.

In addition, the State must seek effective methods to manage living costs because this affects everybody, including business owners.  

The most important thing for the future is increasing the wages. It is necessary for the State to set and limit the appropriate income for workers. When the public and private sectors acknowledge such plans in advance, they can gradually increase the salary in phases and such an approach may not hurt business.

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