COMFORTS OF A COOLER LABOR MARKET OFFSET BY SKILLED STAFF

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000691 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV ELAB ETRD VM SUBJECT: COMFORTS OF A COOLER LABOR MARKET OFFSET BY SKILLED STAFF SHORTAGE IN HCMC REF: HCMC 204 HO CHI MIN 00000691 001.2 OF 002 ¶1. (SBU) Summary: At year's end, Ho Chi Minh City employers are grappling with two distinct human resources trends rising from the economic tumult in 2009. The global economic downturn has given them the upper hand in negotiations with unskilled labor, resulting in flat blue collar wages and cuts in benefits. In stark contrast, business professional salaries are up by 16 percent as demand for managerial, sales and accounting skill continues to outstrip the meager supply that Vietnam's educational system can produce. In this mix, the planned January 1, 2010 increase in the minimum wage worries many who see the move eroding one of Vietnam's main competitive advantages in the battle to attract investment -- low cost labor. End Summary. Exports Down, Giving Employers the Upper Hand -------------- ¶2. (SBU) Vietnam's largest human resources consulting firm, Navigos Group, conducts salary surveys year-round and publishes an annual report benchmarking human resources HR and salary trends by occupation and industry. Director of Navigos Group's HR Advisory Services, Winnie Lam told EconOff that current remuneration trends indicate a "massive" shift in the labor market dynamic from 2008 to 2009. 2008 saw hundreds of strikes as high inflation (28 percent in August) eroded workers standard of living. At the same time, employers in some southern provinces were struggling to find enough workers to enable them to fill their orders. In the last year, labor intensive export-oriented firms experienced an average 60 percent decline in orders, Lam said, forcing many to focus on reducing their labor costs. Despite shrinking demand for exports, nominal wages for unskilled labor remained flat in 2009, buoyed by inflation, Vietnam's law on minimum wage, and the practice of informally indexing salaries to the national minimum wage, Lam explained. She noted that in Vietnam employers often opt to cut employee benefits rather than adjust salary because salary adjustments require government approval. As a result, average employee benefits have fallen by 50 percent since last year among the companies Navigos surveyed. Cutting benefits but maintaining or even slightly increasing salaries during a period of financial uncertainty may seem counterintuitive, but this helps companies reduce payroll costs while staying in compliance with Vietnam's laws, she said. ¶3. (SBU) Employers are now more judicious in hiring, Lam continued. They allow positions to remain vacant longer, taking more time to find the right candidates. For example, the average recruitment time has doubled; where finding a new hire used to take two weeks, now takes a month. They also hold firmer on salary offers. Whereas companies used to be willing to pay 120 percent of their initial salary offer for a candidate performing at 70 percent, they now hold the line on salaries and expect a "120 percent" candidate. Companies are more willing to fire underperforming employees and reduce payroll through attrition. In general employers are feeling less rushed, compared to 2008 when it was just about getting bodies in the door. Unskilled workers read the news and understand the balance between supply and demand, Lam concluded, and have tempered their expectations in the short term. Meanwhile Skilled Labor Demand Continues to Outstrip Supply -------------- -------------- ¶4. (SBU) Laborers are being squeezed by current conditions, but HCMC's professionals are on the other side of the equation. Vietnamworks.com, the country's largest online job service, uses posting data to quantify demand for various skills. While the white collar labor market was somewhat softer in 2009, demand for sales professionals picked up by 12.5 percent in the second quarter of 2009, followed by accounting/finance, engineering, administrative/clerical, and IT-software. The biggest gap between labor supply and demand, however, remains in the top management category - and the mismatch is reflected in higher salaries. According to Navigos survey, aggregate white collar salaries in 2009 actually increased by 16.5 percent and that increase has been driven by the 22 percent jump in top management salaries. HO CHI MIN 00000691 002.2 OF 002 ¶5. (SBU) Both new investment and localization strategies -- reducing costs by replacing expensive expat managers with Vietnamese professional staff -- drive increasing demand for local white collar workers, making it more and more difficult to find strong local candidates. Ms. Pham Thi My Le, CEO of the HR firm Le and Associates, said the talent deficit is so acute that larger companies are replacing high-priced westerners with Filipinos, Singaporeans and Malaysians for key positions like marketing managers, sales managers, brand managers, copywriters, finance managers. Vietnamworks.com confirmed they also see this trend toward the "local international hire" in their online postings. They also noted the increase of overseas Vietnamese returning to Vietnam with needed skills and experience and, best of all for employers, are already in country so do not add additional relocation costs. "Social Justice" or "Blunting Vietnam's Competitive Edge"? -------------- -------------- ¶6. (SBU) From the first of the year 2010, Vietnam's minimum monthly wage will increase under a Ministry of Labor decree. At state-run and domestic companies in HCMC, the minimum wage will rise to $54.50 US$ per month; at foreign-invested factories to $74.40 US$ per month. While the increase in minimum wages reflects a GVN attempt to protect those near the bottom of the wage ladder, a number of the large, labor-intensive industries face extreme price pressure and argue that the wage increase will make it harder for them to continue to compete, effectively driving investors and jobs to other countries. Comment -------------- ¶7. (SBU) Despite the shifting human resource dynamics many employers aren't feeling relief, the Consulate General included, because the in-demand skill-sets are the very human resources we need. Although the HR survey results lag behind an uptick in economic activity, in part spurred by GVN's economic stimulus package, the overall trend still seems to hold. While media reports indicate that demand for low-skilled labor is again gaining traction, particularly seasonal demand ahead of the Tet holiday, exporters are being affected differently and, in general, still remain cautious in hiring. ¶8. (U) The cable was coordinated with Embassy Hanoi. FAIRFAX