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“ International Young Scholars Workshop”

KYOYO, 3 August, 2011 income distribution in foreign direct investment

enterprises in hanoi

DUONG NGOC THANH

PhD Student University of Economics and Business Vietnam National University - Hanoi

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OutlinOutlineses

OutlinOutlineses

* Introduction

* Methodologies

* Empirical results

* Viewpoint and solutions

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Introduction

Foreign investment is important additional capital of Foreign investment is important additional capital of economic improvement needs, increasing economic improvement needs, increasing capacity and technology for important industries capacity and technology for important industries of the capital of the capital

One pressing problem One pressing problem which affects directly the which affects directly the existance, development of the FDI sector is existance, development of the FDI sector is conflict between conflict between the economic benefits of owners, the economic benefits of owners, especially the conflicts between owners – especially the conflicts between owners – employees.employees.

Income distribution creating the harmony between Income distribution creating the harmony between economic benefits in this enterprises type, aim to economic benefits in this enterprises type, aim to help enterprises to develop sustainability, and as help enterprises to develop sustainability, and as a resulta result

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Methodologies (1)

* The method of comparing * The method of comparing relative relationships between relative relationships between income and wages within income and wages within enterprise and between enterprise and between different types of FDI different types of FDI enterprisesenterprises- For other types of enterprises For other types of enterprises - In FDI enterprises it can be In FDI enterprises it can be comparedcompared

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Methodologies (2) (2)* The minimum – medium – * The minimum – medium –

maximum distancemaximum distance : : It is possible It is possible to use minimum, medium, to use minimum, medium, maximum distance in order to maximum distance in order to measure the difference level of measure the difference level of labour income in FDI enterprises labour income in FDI enterprises and other enterprises types.and other enterprises types.

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Methodologies (3) (3)

GINI coefficient: GINI coefficient: The GINI The GINI coefficient is often used to coefficient is often used to

denote the degree of inequality denote the degree of inequality in income distribution. The in income distribution. The

value lies between 0 and 1 and value lies between 0 and 1 and equals to the ratio between the equals to the ratio between the

Lorenz curve.Lorenz curve.

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Empirical results

Principle of law among subjects in FDI Principle of law among subjects in FDI enterprises in Hanoienterprises in Hanoi

Working Contract:Working Contract: The ratio of The ratio of employees who signed working employees who signed working contract increases, from 96% in contract increases, from 96% in 2006 to 97% in 2007, in foreign 2006 to 97% in 2007, in foreign invested enterprises (more than invested enterprises (more than 97%).97%).

Agreement of collaborative working: By the end of 2009 By the end of 2009 aagreement of collaborative working is greement of collaborative working is 64%, increases more than 19% 64%, increases more than 19% comparing to 2007comparing to 2007

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Representative Regulation in working relationship: FDI FDI enterprises have workers union is 50%enterprises have workers union is 50% by the end of 2009. The number of FDI by the end of 2009. The number of FDI enterprises purchasing social enterprises purchasing social insurance is 628/780, which is 80.5% insurance is 628/780, which is 80.5% and decreased comparing to 2005 and decreased comparing to 2005 which is 2%which is 2% . .

In 2008, the ratio of workers’ In 2008, the ratio of workers’ strikes in the FDI enterprises in Hanoi strikes in the FDI enterprises in Hanoi comparing to the nation is 4%.comparing to the nation is 4%. The The recent strikes not only request to deal recent strikes not only request to deal with the right but also request maily with the right but also request maily about benefit; More than 80% of the about benefit; More than 80% of the strikes is requirement salary increasing strikes is requirement salary increasing or pay exact salary, especially is salary or pay exact salary, especially is salary for extra time, bonus, meal etc..for extra time, bonus, meal etc..

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Income assignment in FDI enterprises in Hanoi

Nation Budget Paying (Taxation):

FDI enterprises make up 11% of total national budget paying of the city. The rate of national budget paying of this enterprise type is compare with turnover is the highest in the year of 2005 (9,56%), in the next years, it reached nearly 5.5% on an everage (Source: Hanoi statistics Bureau).

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Enterprises Profit:

FDI enterprises have few quantity and do not use many labour, however the result of their business production is very high compared to the average profit of one normal business (in 2005 more than 13.1 times, in 2006 more than 8.7 times, in 2007 more than 8.9 times, in 2008 more than 13.2 times)

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Salary – Income:

Thousand VND

Their incomes in the enterprises have been continuously being enhanced, in 2006 is 13.3%, 2007 is 35.8% and 2008 is 22.6%. Compared with 2005, the labors’ average income increases 88.6% higher than depreciation speed at the same time which is 45%.

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2005 2006 2007 2008

Everage State enteprises non state enterpries FDI enterprises

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- Monthly average income according to positions of employees (managers, direct producing, executive, service employees) in FDI enterprises also tend to increase dramatically. In terms of level, the highest belongs to managers.- Wage distribution is more different among types of labors according to positions of different areas. In general, the managers had the highest salary, followed by specialized officials, then direct producing labors and lowest was service labors.

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The general assessment

The fairness in income distribution:

- Wage & income distribution relationship in business types relating closely to the effectiveness of business production and divide reasonably business production results - FDI businesses in Hanoi reached 116,210 billion in 2008, increased by 1.3 times compared to 2007 and 2.3 times compared to 2005.

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The difference of minimum The difference of minimum wage regulated by Goverment wage regulated by Goverment remained in 2008 between foreign remained in 2008 between foreign invested enteprise and domestic invested enteprise and domestic corporation reaching 16.13% in zone corporation reaching 16.13% in zone I, 55.17% in zone II and 48.15% in I, 55.17% in zone II and 48.15% in zone III.zone III.

Equality in minimum wage:

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Equality among employees:

If we separate employees in FDI into 4 categories (managers, professionals, workers and executives) then the gap in average monthly wage of such categorised employees is big between manager and other categorises. The lowest payment goes to executives, while managers enjoy the highest wage.

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Compared to business type, the non-

state owned enterprise has lowest monthly average income, next is state owned enterprise, and the highest is the foreign invested business, however the different distance is relatively from 1.32 times to 2.33 times. The minimum – average – maximum levels of wage in FDI enterprises in the years 2007-2008 was respectively 1 - 2,23 -11,01

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GINI coefficient for wages in various types of foreign invested

enterprises: foreign investment enterprises Gini

coefficient tends to increase from 1998-2002 (0.357 up 0.498), then tended to decrease from 2002 to 2004 (down from 0.498 down to 0.356) and in 2004-2006 tended to increase (from 0.356 to 0.413).

To the stage in 2006 inequality in the relationship of wage distribution in kind is the highest foreign investment enterprise - this is one of the causes of the conflict of economic interests that the peak in 2007 and beginning in 2008.

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Viewpoint and solutions for completing income distribution in companies which have foreign

invested capital in Hanoi * Viewpoint of completing income * Viewpoint of completing income

distribution in FDI enterprises in Hanoi:distribution in FDI enterprises in Hanoi: Completing distribution relationship Completing distribution relationship must rely on market economy’s rules: must rely on market economy’s rules: income distribution sticks with human income distribution sticks with human resource usage. Income distribution resource usage. Income distribution sticks with the effectiveness of human sticks with the effectiveness of human resource usage. Completing distribution resource usage. Completing distribution relationship must have adjustment of the relationship must have adjustment of the goventment goventment

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* Solutions for completing distribution relationship in companies which have foreign invested capital:- Solutions for creating environment: Create environment in businesses Create environment in businesses investment. Improve the clearance of investment. Improve the clearance of law, increase the effectiveness of law, increase the effectiveness of implementing law. Change the implementing law. Change the thinking and management mechanism thinking and management mechanism (clearance in finance and statistics – (clearance in finance and statistics – business accountancy).business accountancy).- Adjustment policies:- Adjustment policies: Policies of labor Policies of labor usage; Salary policies; profit policies; usage; Salary policies; profit policies; tax policies. Other policies; tax policies. Other policies; Employment policies, social insurance Employment policies, social insurance policies – medicial insurance, other policies – medicial insurance, other social welfare policies.social welfare policies.

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