Why the Laos Wage Hike Debate Matters

Efforts by trade unions to increase the minimum wage, only to be resisted by business interests, are a familiar refrain across the world. Indeed, even the socialist state of Lao People’s Democratic Republic is not immune.

Current negotiations to raise the minimum wage in Laos, consistently one of the poorest countries in Southeast Asia, have seen workers push for an ambitious increase of one-third over the current wage of 900,000 kip ($108) a month set in 2015. Represented by the Lao Federation of Trade Unions, workers say they need around 1.2 million kip a month to bring wages in line with the increasing cost of living.

Not so fast, said the Lao National Chamber of Commerce and Industry, which argues that any increase beyond 1 million kip would see costs blow out and factory owners pull out of the country. Quoting Lao National Chamber of Commerce and Industry Vice President Valy Vetsaphong, Radio Free Asia (RFA) reported business in Laos is likely to advocate for a two-year implementation period on a minimum wage no higher than 1 million kip a month. She also told RFA that an increase could lead to costs being passed onto consumers and, importantly, foreign-owned business leaving the country.

This is a particularly potent threat in Laos, which was one of the world’s hubs for clothing and textile manufacturing in the 1990s. Foreign direct investment in those industries reached $65 million in the 1991-2000 period according to government figures, but that number has steadily dropped to below $10 million between 2011 and 2015. The World Bank puts overall foreign investment in 2015 at $1.5 billion, but data shows 80 percent of that went to hydropower and mining industries.

Following massive economic reforms in the late 1980s, global brands shifted operations from other Southeast Asia countries into the tiny one-party state in an effort to further cut costs. Two decades later, however, demand has declined and productivity remains low. Laos  is one of the fastest growing economies in the world, expected to grow by 7 percent annually over the coming years, according to Bloomberg, off the back of natural resources exports. In light of that growth, Laos must grapple with the changing face of work in the region. Accurately valuing the minimum wage is the first battle.

A change in labor laws in Thailand has given Lao reforms a new sense of urgency. In July, the Thai government required tougher checks on documented workers and jail time for the undocumented. Thailand’s construction, fishing, and domestic sectors had long been a favored destination for Laotian workers, who could earn almost double in monthly wages working in Thailand compared to back home. The recent changes sent thousands of undocumented workers back to Laos – as well as Myanmar and Cambodia – who now have to find work and support families on half of what they had been earning.

The increase will be the first since 2015, when the wage jumped from 626,000 kip to 900,000 kip. That followed a 2012 increase from 348,000 kip. If the Chamber of Commerce gets its way in demanding a two-year implementation period, it would effectively mean no increase in the take-home pay of minimum-wage earners for a full five year period. While the government has made efforts toward investing in stronger health and education programs as well as toying with subsidizing consumer goods, a slow approach risks alienating the working class.

Asian Development Bank figures put Laos as one of the poorest countries in the region, with 23.2 percent of the population living under the poverty line in 2012. The government, as well as NGOs and aid organizations, are working closely to reach Sustainable Development Goals within the next two years with poverty reduction a major aspect. While a minimum wage increase is not so much a question of “if” in Laos, rather than “when and by how much,” any further delays will see those 2020 targets fall short.