ADJUSTING WORKERS WAGE ON CPI Inflation arouses the wave of salary problem among public due to the more

difficult in the quality of life, so people from every walk of life tend to think that the governments should change the way calculation salary in Vietnams economic. Most people agree with that we should change this in each firm, yet there are a lot of discussions between residents into a question that is how can we change this?. After a long time with many calls from experts, on 27th of March, the Standing Committee of the National Assembly promise to listen and solve the salary problem by labor law as soon as possible. At the same time, Members of Parliament reveal many opinions among journalists and public. However, most economists believe that we should set up the basic wage by consumer products index (CPI). Before talking into CPI, we should mention about the Vietnams economic and the old way to calculate minimum wage and its problems which are existing. The economy of Vietnam is a developing planned economy and market economy. Since the mid-1980s, through the "i Mi" reform period, Vietnam has made a shift from a highly-centralized planned economy to a socialistoriented market economy which use both directive and indicative planning (see Five-Year Plans of Vietnam). Over that period, the economy has experienced rapid growth. Nowadays, Vietnam is in the period of integrating into the world's economy, as a part of globalization. Almost all Vietnamese enterprises are SMEs. Vietnam has been rising as a leading agricultural exporter and an attractive foreign investment destination in Southeast Asia. In 2011, the nominal GDP reached $121.6 billion, with nominal GDP per capita of $1328.6. According to a forecast in December 2005 by Goldman-Sachs, Vietnamese economy will become the 35th largest economy in the world with nominal GDP of $ 436 billion and nominal GDP per capita of 4,357 USD by 2025. According to a forecast by the PricewaterhouseCoopers in 2008, Vietnam may be the fastest growing of emerging economies by 2025, with a potential growth rate of almost 10% per annum in real dollar terms that could push it up to around 70% of the size of the UK economy by 2050.

As of April 2008, one U.S. dollar was equivalent to about 20,850 Vietnamese dong. The relationship between the U.S. dollar and Vietnamese dong is important because the dong, although not freely convertible, is loosely pegged to the dollar through an arrangement known as a "crawling peg". This mechanism allows the dollar-dong exchange rate to adjust gradually to changing market conditions. Vietnam's economy experienced a hyperinflation period in its early years of the extensive reform program, especially from 1989-1992. Gold still maintains its position as a physical currency to a certain extent, although seeing its economic role declining in recent years. In 2008 inflation was tracking at 20.3% for the first half of the year, higher than the 3.4 percent rate measured in 2000 but down significantly from 160 percent in 1988. According to the history of Vietnams economy and the numbers, it can be said that the economy of Vietnam growth very fast. As a result of quickly growing is inflation and social problems. For reducing this, people support to calculate minimum wage by CPI instead of the traditional way. Firstly, we will mention in detail about calculating the salary by old way which is paid by level. People with different wage level will have different amount of salary each month. The formula for calculating salary bases on the basic wage or the minimum wage assigned by the government. The wage is equal the minimum wage (minimum wage is 1,050,000 VN from May 1st, 2012) multiple with the wage level. With every specific of years, the wage level will be increased in specific of number so the salary will also increase.

ID Code 1 2 3 4

CC-VC Ranks CC-VC type A3.1 1.001 High-level experts High-level 13.09 researchers 13.09 3 High-level engineers 15.10 9 High-level lecturers CC-VC type A2.1 1.002 Main experts 13.09 1 Main researchers 13.09 4 Main engineers Associate professors 15.11 and main lecturers CC-VC type A2.2 6.03 15.11 2 17.16 Main accountant Main high school teachers Main library staff

SALARY TABLE LEVEL DECREE IS AT 204 S Lev Lev Lev Lev Lev Lev el el el el el el Level N N B 1 2 3 4 5 6 7 3 3 3 3 6.2 6.56 6.92 7.28 7.64 6.2 6.56 6.92 7.28 7.64 6.2 6.56 6.92 7.28 7.64 6.2 6.56 6.92 7.28 7.64 8 VK 5% 8 VK 5% 8 VK 5% 8 VK 5%

Leve l Level 8 9

Level 10

Level 11

3 3 3 3

4.4 4.74 5.08 5.42 5.76 4.4 4.74 5.08 5.42 5.76 4.4 4.74 5.08 5.42 5.76 4.4 4.74 5.08 5.42 5.76

6.1 6.1 6.1 6.1

6.44 6.44 6.44 6.44

6.78 6.78 6.78 6.78

5 6 7

VK 5% VK 5% VK 5% VK 5% VK 8% VK 8% VK VK 11% VK 11% VK

8 9 10

3 3 3

4 4.34 4.68 5.02 5.36 4 4.34 4.68 5.02 5.36 4 4.34 4.68 5.02 5.36

5.7 5.7 5.7

6.04 6.04 6.04

VK 6.38 5% VK 6.38 5% 6.38 VK

9 CC-VC type A1 11 12 13 14 15 16 17 1.003 Experts 6.031 13.09 2 13.09 5 15.11 1 15.11 3 Accountant Researchers Engineers Lecturers secondary teachers 3 3 3 3 3 3 3 3 3 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 2.34 2.67 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 3 3.33 3.66 3.99 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65

5% 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98

17.17 Librarian 18.18 18 1 Coaches CC-VC typeAo New category (College) Ao 15c.2 Secondary school 1 07 teachers (College) CC-VC type B 1.004 Staff Intermediate 6.032 Accountant

8% VK 5% VK 5% VK 5% VK 5% VK 5% VK 5% VK 5% VK 5% VK 5%

11%

3 3 2 2

2.1 2.41 2.72 3.03 3.34 3.65 2.1 2.41 2.72 3.03 3.34 3.65 1.86 2.06 2.26 2.46 2.66 2.86 1.86 2.06 2.26 2.46 2.66 2.86

3.96 3.96 3.06 3.06

4.27 4.27 3.26 3.26

4.58 4.58 3.46 3.46

4.89 4.89 3.66 3.66 3.86 3.86

13.09 6 16.11 9 17.17 1 15.11 5

Technicians Physicians Intermediate librarian Preschool teachers CC-VC type C.2 Treasurer agency or unit CC-VC typeC.3 Accountants primary Executive staff, service Technical typist Drivers Technical Staff Typer Security guard Clerical staff Service personnel

2 2 2 2

1.86 2.06 2.26 2.46 2.66 2.86 1.86 2.06 2.26 2.46 2.66 2.86 1.86 2.06 2.26 2.46 2.66 2.86 1.86 2.06 2.26 2.46 2.66 2.86

3.06 3.06 3.06 3.06

3.26 3.26 3.26 3.26

3.46 3.46 3.46 3.46

3.66 3.66 3.66 3.66

3.86 3.86 3.86 3.86

6.035 6.033

2 2

1.5 1.68 1.86 2.04 2.22

2.4

2.58 2.43

2.76 2.61

2.94 2.79

3.12 2.97

3.3 3.15

1.35 1.53 1.71 1.89 2.07 2.25

1.005 1.01 1.007 1.006 1.011 1.008 1.009

2 2 2 2 2 2 2

2.05 2.05 1.65 1.5 1.5 1.35 1

2.23 2.23 1.83 1.68 1.68 1.53 1.18

2.41 2.41 2.01 1.86 1.86 1.71 1.36

2.59 2.59 2.19 2.04 2.04 1.89 1.54

2.77 2.77 2.37 2.22 2.22 2.07 1.72

2.95 2.95 2.55 2.4 2.4 2.25 1.9

3.13 3.13 2.73 2.58 2.58 2.43 2.08

3.31 3.31 2.91 2.76 2.76 2.61 2.26

3.49 3.49 3.09 2.94 2.94 2.79 2.44

3.67 3.67 3.27 3.12 3.12 2.97 2.62

3.85 3.85 3.45 3.3 3.3 3.15 2.8

However, the wage level is flexible because the government divided it into many suitable types with each job and each person who is graduated from colleges or universities or unskilled workers. With a small example we will see how flexible wage level is. The first example is that a person graduated from a university. His wage level has eight levels with the first one is 2.34 and will be increase 0.33 every three years. Therefore, his official salary in the first three year is equal based wage 1,050,000 x 2.34 = 2,457,000 VN and the next three years is 1,050,000 x (2.34 + 0.33) = 2,803,500 VN. The second example is a person graduated from a college. His wage level has nine levels with the first one is 2.10 and will be increased 0.31 every three years. Therefore, his official salary in the first three years is equal 1,050,000 x 2,10 = 2,205,000 VN. After that, his next three year salary is 1,050,000 x (2.10 + 0.31) = 2,530,500 VN. Even though the government assigned the minimum wage for people to have enough money to live, it still has some unwanted disadvantages. The first is that the amount of money is still inadequate with the ability of high level standard people. For example, the first three year salary of an associated professor is 1,050,000 x 4.40 = 4,620,000 VN. Thats still very low with the ability and the effort to have the associated professor degree. The second disadvantages is that the wage level is increased every specific years may cause people do not try their best in work to raise the salary. This leads to the work will not be implemented in the most effective way. Lastly, the third is about the inflation. The economists cannot predict what will happen with Vietnams economic. In case the inflation increase rapidly but the government need to have much time to adjust the base wage. In this time, the unadjusted salary would not respond to the expensive price and it would affect too much to people life.

As mentioned before, there are many problems in the old way to calculate wage for everyone. Our group will go to more detail in the correlation between the wage and the inflation, which is the main reason lead to change calculating wage by CPI.

From 2005 to 2007, the percentage of inflation remained stable at 8.3%.The next year experienced a dramatic rise by 10% from 8.3% to 18.3%. And there was a slight decrease in 2009 to 17.5%.

Inflation makes the prices of goods and services higher and higher while there is no variable to measure the fluctuation of minimum wages. Thus, the wages cannot catch up the speed of prices increasing. The trouble problem makes economists think about CPI (consumer price index) which is a measure of the overall cost of the goods and services bought by a typical consumer. Please look at in detail the graph which shown CPI in Vietnam

By 6 years from 2005 to 2011, the CPI in Vietnam went up significantly from 120.3 to 261.86 which mean that in some types of consumers, people tend to spend more. With the increasing of inflations speed, the live will be more difficult. However with the rate of CPI and inflation, the level of wage system has shown many troubles. The salary system bases on minimum wage and level which depends on the time that employees work, the salary is calculated. A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers.

The people thinks that minimum wages is too low to live. This problem can lead to many consequences. Residents can't live on the salary. Salary is not only used for their basic needs but also taxes, insurances. The prices of gasoline is higher, and lead the price of other goods increase .Residents find ways to get more money for spending, for example, the salary of a teacher. She has worked 10 years , she gets 2.5 millions/month. How can she live with only 2.5 millions when the price is increasing if she doesn't teach extra time. Teaching is a job that requires passion, hard-working. They have to spend a lot of time to prepare the lessons, they have to face with many obstacle and stress from students, parents of students. It's very clear to see that the salary does not deserve what teachers work. How the resident can live on their salary is the important thing that resident concerns at We want to give out some problems. The wage system is not fair. The wage is a measure of work's amount and result, the employee's education. Salary of doctor with level is 3.0 is less than a taxi driver. How this salary can encourage a doctor to research and work harder. On the other hand, government pays for employees base on this system, the salary is low, it can lead to corruption and bureaucracy. And one consequence is brain drain. Higheducated employees feel that the salary is not deserved with their work, they will leave and find another places pay higher which is mostly a foreign company. As a result, the minimum wage should base on CPI which is a variable to measure residents spending. Now, we will move to the ways calculating salary by CPI in detail. We have 4 steps to calculate CPI: 1. 2. 3. 4. By researching , the accountants will choose the fix basket on goods and services Determining the price of goods and services in the basket Calculating the cost of basket Choosing one base time to calculate the CPI with the formula: CPI=

Price of basket of goods and services in current year Price of basket in base year For example: calculating the CPI in 2010 1. After conveying, the accountants reveal the basket is that 4 hot dogs and 2 hamburgers 2. With the price in 3 years:

year 2008 2009 2010

Price of hot dogs $1 $2 $3

Price of hamburgers $2 $3 $4

3. Computing the cost the basket of Goods in each year 2008 2009 2008 ($1 per hot dog*4 hot dogs) + ($2 per hamburger * hamburger) = $8per basket ($2 per hot dog*4 hot dogs) + ($3 per hamburger * hamburger) = $14per basket ($3 per hot dog*4 hot dogs) + ($4 per hamburger * hamburger) = $20per basket

4. Choosing one base time to calculate the CPI with the formula 2008 ($8/$8)*100=100 2009 ($14/$8)*100=175 2010 ($20/$8)*100=250 The example above is just a simple one. In fact, the Bureau of Labor Statistics (BLS) has to do a large survey to find out a suitable basket and its price for the economic. As can be known first that CPI measures the average change over time in the prices which typical people wage earners pay for basic goods and services in their life such as: clothing, food, medical care, transportation and so on. The CPI is considered the best way to know about economic activities of a country concluded: the inflation, the cost-of-living adjustment, an economic indicator or Social Security payments. Besides that, CPI has many advantages that have been proved.

Firstly, it is a reasonably large market basket of goods and services. The CPI is monthly calculated and reported within two weeks of the following month. The Bureau of Labor Statistics (BLS) has to survey many households to find out what kinds of goods and services they paid for or where they regularly go shopping. Then BLS contacts to businesses in the area to obtain prices for these items. The CPI combined all of this data which represents the average of a market basket of goods and services. The CPI also set up price changes in 8 different categories such as: housing, food and beverages, medical care, transportation, apparel, recreation, education and communication and other goods and services. By breaking down the prices in these areas, it clearly show us whether one particular area is suffering from inflationary increases compared to other areas. Secondly, its measurable. The percentage increase in the CPI reflects a high rate of inflation so the government often reacts to that by raising interest rates in order to control the nations money supply. The CPI also determines the percentage of income of people to establish tax level and it is used both to compare prices for goods and services within years and to calculate dollar values for 2 points in time. However, CPI still has disadvantage which caused many criticisms by some economists such as it is changing over time. When the total cost of the entire basket is set to 100 in the base year, the CPI still changes in prices of new goods and services over time. We all know that everyday more and more goods and services were produced with high quality. When new products are released, they may not be included in the basket of goods used to calculate CPI for many years ago. Moreover, the quality of goods and services mostly affect to the CPI. The CPI does not take a account of the increased products, for example, a motorbike you buy today might be better safety and require fewer repairs or gasoline than a comparable motorbike 5 years ago. Calculating the minimum wage by CPI is still a big challenge for Vietnamese government, especially with the heavy politic system. With inflation, the prices and CPI surely move up. This leads to higher minimum wage, so the government has to pay more for their system. Government deficit cannot be avoided, but the public life should be more important than the governments debt.

Consequently, it can be seen clearly that the advantages still outweigh the disadvantages. So there is no reason for us to prevent calculating minimum wage by CPI. We hope that people will have a quality life after changing the way to calculate basic way. These are not important with rich, yet it can save a life of a workers family.