Abstract

This column presents new evidence on the impact of minimum wages in Vietnam from 2012 to 2020. Using large-scale labor force data, the study (Nguyen 2025) shows that higher minimum wages did not reduce overall employment or monthly earnings. Instead, minimum wages reduced the working hours of workers. As a result, hourly earnings increased, implying improved productivity. The findings highlight the promise and challenges of minimum wage policy in a lower-middle-income country.

Why Minimum Wages Matter

Almost every country has a minimum wage system in place. Supporters argue that raising the minimum wage improves living standards, reduces inequality, and encourages workers to remain in their jobs. However, the real-world effects often differ from policymakers’ expectations, as higher labor costs might lead to employers hiring fewer workers, cutting hours, or relocating operations. The debate becomes even more complex in developing countries where enforcement is often weak and informal employment is widespread.

Vietnam provides an especially interesting case because it has shifted from a single national minimum wage to a system of four regional levels since the late 2000s, reflecting differences in living costs across the country. These monthly minimum wages are updated annually through negotiations in a tripartite council comprising the government, employers, and trade unions. Between 2012 and 2020, the real value of the minimum wage increased by approximately 4% per year, sparking debate about whether higher minimum wages are benefiting workers or hindering businesses.

How We Studied the Question

To explore this issue, we used data from Vietnam’s annual Labor Force Surveys, which cover approximately 800,000 individuals each year. These surveys provide detailed information about individuals’ jobs, wages, and working hours. Combining this with official data on minimum wages in all 713 districts enabled the examination of the association between minimum wage changes and individuals’ employment outcomes. The focus was on wage workers aged 15 and above as they are directly covered by minimum wage laws.

The analysis relies on district and province-year fixed-effects regressions, comparing labor market outcomes across districts and years with different levels of minimum wage increases. This approach enables us to isolate the effect of minimum wages from factors that remain constant within districts over time, as well as from province-level trends—such as economic growth or inflation—that fluctuate over time.

What We Found

• Based on our empirical analysis, we highlight the following key findings: No significant job losses: There was no evidence that higher minimum wages reduced overall employment or wage employment, as people were just as likely to have a job after the minimum wage increased. Monthly earnings also did not significantly change, which suggests that employers did not respond to higher minimum wages by reducing labor demand.
• Shorter working hours: The primary adjustment was a reduction in working hours, as a 1% increase in the minimum wage resulted in a 0.38% decrease in weekly working hours. This finding implies that employers retained their staff but reduced the working hours for each person.
• Higher hourly pay: As total monthly earnings were not affected by the reduction in hours, hourly wages increased, whereby a 1% rise in the minimum wage translated into a 0.32% increase in hourly earnings. Higher hourly wages might reflect increased labor productivity, either because workers devote more effort per hour or because firms reorganized production to make better use of labor. However, our study is unable to reach a definitive conclusion on productivity gains.
• Heterogeneous effects: The positive effects on hourly earnings were most substantial among younger workers, those with higher education, and employees in foreign-invested firms. By contrast, the effects were negligible for older or less educated workers, as well as for those employed in the agricultural and service sectors.
• Compliance issues: Not all employers adhered to the rules. The share of workers earning less than the legal minimum actually increased slightly when minimum wages rose, highlighting weaknesses in enforcement.

Policy Implications

Our study of Vietnam between 2012 and 2020 reveals that higher minimum wages did not result in job losses or reduced monthly earnings. Instead, employers adjusted by shortening working hours, which raised hourly earnings. In other words, workers ended up being paid more for each hour they worked.

Nonetheless, specific challenges remain. For example, a rising share of workers earning less than the minimum wage during the COVID-19 pandemic year indicates that enforcement is uneven, especially in the informal sector. Moreover, as hourly underpayment is more widespread than monthly underpayment, the government’s recent move to introduce hourly minimum wages is a critical step in protecting part-time and casual workers.

The broader lesson is about balance, as moderate increases in the minimum wage have improved hourly earnings without harming overall employment. However, much sharper hikes could pose risks for small businesses, competitiveness, and compliance. Therefore, policymakers must combine wage policies with broader measures such as social insurance expansion, skills training, and support for small firms.

Author's Profile

Dr. Nguyen Viet Cuong is a researcher and lecturer at the International School, Vietnam National University, and the Mekong Development Research Institute, Vietnam. Dr. Nguyen is a member of the Vietnam National Wages Council (2021–2025). His recent studies have been published in leading journals, including the Journal of Health Economics, Journal of Development Economics, Journal of Urban Economics, American Political Science Review, Demography, European Economic Review, and Journal of Comparative Economics.

Reference

Nguyen, C. V. 2025. “The Impact of Minimum Wages on Employment: Evidence from a Lower Middle‐Income Country.” The Developing Economies 63(2): 137-182.
https://doi.org/10.1111/deve.12419

* The views expressed in the columns are those of the author(s) and do not represent the views of IDE or the institutions to which the authors are attached.
* Thumbnail photo: Eiali, CC BY-SA 4.0, via Wikimedia Commons

©2025 NGUYEN Viet Cuong

This column is licensed under a Creative Commons Attribution 4.0 International license (CC BY 4.0). https://creativecommons.org/licenses/by/4.0/deed