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Prices and Wages

During the early 1980s, the trend was toward greater price flexibility, but prices of both intermediate and consumer goods continued to be determined largely by the central government. Prices of agricultural and non-agricultural cooperative products were closely related to the government's procurement policy and the two-way contract system. Under this system, the government assigned production quotas. Production achieved in excess of the quota could then be sold either to the government at negotiated prices or to buyers in the free market. Negotiated prices normally were higher than quota prices but lower than free-market prices.

Prices of the products of state-owned enterprises were established on the basis of average cost norms, applicable taxes, and a fixed profit margin. Production in excess of quotas or from inputs not supplied by the state could be sold at higher prices, enabling producers to recoup input cost while providing an incentive for above-quota production.

Consumer prices for commodities distributed by the state were different from those for products distributed in the free market. Official consumer prices fell into three categories depending on the type of goods as well as on the type of consumer. The first two categories consisted of essential commodities, such as rice, pork, textiles, and soap, which were distributed under rations at two different price levels. Civil servants, workers in state enterprises, and selected groups of consumers, such as students, pensioners and welfare recipients, were permitted to purchase these goods at substantial subsidies. A third price category for the same commodities was based on cost and was reserved for members of cooperatives and for individuals associated with contract work for the government. The subsidized prices remained unchanged for twenty years, but the cost-based prices continued to rise.

Party leaders at the Central Committee's Eighth Plenum (Fifth Congress) in 1985 experimented with eliminating fixed prices and removing subsidies on staples, thus causing a price increase for basic items. At the Second Plenum (Sixth Congress) held in April 1987, a policy of rational pricing based on cost and projected consumer demand was implemented for industries.

Wage increases of between 90 and 110 percent were granted in mid-1981 to civil servants and employees of state enterprises. Before the wage increase, state employees had benefited from access to state-supplied commodities at subsidized prices. Afterwards, purchases of state-supplied commodities, as part of the total expenditures of civil servants and manual laborers, fell, a development that contributed to a decline in the real incomes of these workers.

Reform measures introduced in 1985 instituted major changes in wage policy. Beginning at that time, wages were determined on the basis of performance and paid in cash. Previously wages had been paid partly or entirely in kind. Government employees (including the military) received a further increase in salary but lost the supplements to their income that had previously included food subsidies. Wages for workers in state-run factories were increased at the April 1987 party plenum but any wage increases were directly translated into, and offset by, higher prices.

Data as of December 1987