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Minimum wage increase unlikely to affect inflation: ADB
Economists have expressed concern that raising the minimum wage in Laos might cause even higher inflation, but a top Asian Development Bank (ADB) official has said the move would have minimal impacts on inflation.
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| Higher fuel prices have caused food prices to rise in Vientiane |
Amidst rising food and fuel prices, authorities are negotiating a rise in the minimum wage for Lao workers. The Lao Federation of Trade Unions has stated the proposed wage rise is aimed at improving the livelihoods of workers in response to rising inflation.
Some businesses and economists have voiced concern that raising the minimum wage could lead to higher inflation as it would increase production costs and businesses would have to sell their products at higher prices.
ADB Laos Resident Mission Deputy Country Director Mr. A. Barend Frielink has said he believes that a rise in the minimum wage would not have much impact on inflation rates.
“I don't expect that raising the minimum wage will affect inflation because most Lao people are not in the formal economic sector and don't receive the formal minimum wage.”
“However, it might have some impacts on exports, industry and mining but that doesn't necessarily impact on inflation.”
Mr. Frielink was speaking to media last week after the launch of the latest ADB economic report.
The ABD has projected the inflation rate for Laos this year will be around 6.5 percent and GDP growth will be 7.7 percent. “If there is a higher inflation rate, it won't affect the growth of the country,” Mr. Frielink noted.
The minimum wage for Lao workers is currently 348,000 kip per month but, if allowances are included, a worker on the minimum wage can earn about 500,000 kip.
The last increase to the minimum wage occurred in 2009, when it rose from 290,000 kip to 348,000 kip per month. The Lao Federation of Trade Unions wants to propose a minimum wage of about 700,000 kip per month, more than double the current wage.
In 2010, the inflation rate hit 5.98 percent, with notable peaks in September (8.14 percent), August (7.98 percent) and October (7.87 percent).
Many economists have suggested that increasing the minimum wage is not a long-term solution to Laos' economic problems. The way to improve the situation is to boost productivity and reduce imports. The ADB report suggests that the country needs a proper monetary policy to cope with inflation.
With high food and fuel prices globally, inflation is now threatening many Asian countries, despite rapid economic growth in the region. Many countries have used monetary policy to ease inflationary pressure, such as controlling interest rates and boosting production levels.
The Lao government uses various monetary measures to address inflation and also promotes greater domestic production and reductions in imports.
vientiane times
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