Labor costs are higher in Vietnam than in other Southeast Asian countries. Wage costs per worker for the median Vietnamese firm are about twice as high as in Laos, Myanmar and Malaysia and about 30 to 45 per cent higher than in Cambodia, Thailand and the Philippines. Labor cost for a firm is defined as the cost of payments to workers divided by the number of workers.

But Vietnam’s high labor costs are in line with productivity levels and thus do not seem to be a major obstacle to competitiveness. The value-added per worker per year in an average manufacturing firm in Vietnam is higher than in most countries in southeast Asia.

Vietnam’s relatively high value appears to be partly driven by high and growing use of capital. The north-central and central coastal regions have the highest productivity while the southeast comes in second.

Foreign-owned firms are generally more productive than domestic firms, which can be explained by their easier access to technology and finance through their parent companies. Capital productivity is low in Vietnam. The ratio of sales to value capital in Vietnam is around 160 per cent, lower than in any of its peers in southeast Asia. It could be that capital is not used very efficiently in Vietnam.