1 “ International Young Scholars Workshop” K YOYO, 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

2 OutlinesOutlines * Introduction * Methodologies * Empirical results * Viewpoint and solutions

3 Introduction Foreign investment is important additional capital of economic improvement needs, increasing capacity and technology for important industries of the capital One pressing problem which affects directly the existance, development of the FDI sector is conflict between the economic benefits of owners, especially the conflicts between owners – employees. Income distribution creating the harmony between economic benefits in this enterprises type, aim to help enterprises to develop sustainability, and as a result

4 Methodologies (1) * The method of comparing relative relationships between income and wages within enterprise and between different types of FDI enterprises - For other types of enterprises - In FDI enterprises it can be compared

5 (2) Methodologies (2) * The minimum – medium – maximum distance : It is possible to use minimum, medium, maximum distance in order to measure the difference level of labour income in FDI enterprises and other enterprises types.

6 (3) Methodologies (3) GINI coefficient: The GINI coefficient is often used to denote the degree of inequality in income distribution. The value lies between 0 and 1 and equals to the ratio between the Lorenz curve.

7 Empirical results Principle of law among subjects in FDI enterprises in Hanoi Working Contract: The ratio of employees who signed working contract increases, from 96% in 2006 to 97% in 2007, in foreign invested enterprises (more than 97%). By the end of 2009 agreement of collaborative working is 64%, increases more than 19% comparing to 2007 Agreement of collaborative working: By the end of 2009 agreement of collaborative working is 64%, increases more than 19% comparing to 2007

8 FDI enterprises have workers union is 50% by the end of The number of FDI enterprises purchasing social insurance is 628/780, which is 80.5% and decreased comparing to 2005 which is 2%. Representative Regulation in working relationship: FDI enterprises have workers union is 50% by the end of The number of FDI enterprises purchasing social insurance is 628/780, which is 80.5% and decreased comparing to 2005 which is 2%. In 2008, the ratio of workers’ strikes in the FDI enterprises in Hanoi comparing to the nation is 4%. The recent strikes not only request to deal with the right but also request maily about benefit; More than 80% of the strikes is requirement salary increasing or pay exact salary, especially is salary for extra time, bonus, meal etc..

9 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).

10 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)

11 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%.

12 - 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.

13 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.

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

15 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.

16 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 was respectively 1 - 2,23 -11,01

17 GINI coefficient for wages in various types of foreign invested enterprises: foreign investment enterprises Gini coefficient tends to increase from (0.357 up 0.498), then tended to decrease from 2002 to 2004 (down from down to 0.356) and in tended to increase (from 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.

18 Viewpoint and solutions for completing income distribution in companies which have foreign invested capital in Hanoi * Viewpoint of completing income distribution in FDI enterprises in Hanoi: Completing distribution relationship must rely on market economy’s rules: income distribution sticks with human resource usage. Income distribution sticks with the effectiveness of human resource usage. Completing distribution relationship must have adjustment of the goventment

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

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