The biggest error in “move the plant to Vietnam” spreadsheets is dividing nominal wages by each other and concluding. This article builds the total labour-cost equation between the two countries layer by layer — wages, mandatory contributions, productivity, exit costs, expatriates — and differs from landed-cost analysis for US-bound goods via China: here the comparison axis is people cost between Vietnam and Germany.
Layers 1 and 2: nominal wages and mandatory contributions on top
Production wages in Vietnam are lower than in Germany by multiples — the part everyone sees. But the figure entering the model must be the full cost per position: on the Vietnamese side, beyond wages the employer contributes social insurance 17.5%, health insurance 3% and unemployment insurance 1% on the insured salary fund (21.5% in total), plus 2% trade union funds; the employee contributes 10.5% on their side. These contributions are capped by statutory ceilings linked to regional minimum wages, so the effective rate on total income of higher-paid staff is below the nominal rate.
On the German side, the employer bears roughly half of total social security contributions (pension, unemployment, health, long-term care) — around a fifth of gross pay added to cost — before sector collective-agreement extras. The gap in “fully loaded cost per labour hour” between the two countries therefore remains very large, but narrower than the pure nominal wage gap — and that is the right input figure for the investment decision.
Layer 3: productivity, training and management cost erode the advantage
A cheap labour hour does not mean a cheap product. Average labour productivity in Vietnam is lower than in Germany, the share of workers needing retraining on entry is higher, and bilingual middle-management roles (Vietnamese – German/English) are priced near regional levels, not factory-worker levels. Operating experience shows the real cost advantage of a Vietnam plant usually lands materially below the paper wage gap, after training cost, ramp-up defect rates and the expatriate team that must be maintained in the early years.
The correct metric is labour cost per unit of conforming product, along a projected 3–5 year productivity curve, not cost per head in month one. German companies should have the Vietnamese operation commit to a productivity roadmap inside the financial model itself, because that variable decides the break-even of the relocation decision — not the regional minimum wage.
Layers 4 and 5: exit costs and expatriate costs
Exit costs differ in nature between the two countries: Vietnam has statutory severance allowance (Article 46) and job-loss allowance (Article 47) of the Labour Code computed on creditable service, plus notice duties and compensation risk for unlawful termination — costs that can be estimated quite precisely. Germany has no equivalent general statutory severance formula; exit cost typically arises through negotiation, social plans (Sozialplan) in large reductions and dismissal-protection litigation risk — harder to estimate and often higher in strongly unionised plants.
Finally, the cost of German experts sent to Vietnam — the line most often forgotten in year-one models: each secondee carries a package of home-standard salary, housing, car, children schooling, home-leave flights and tax gross-up, plus work permit procedure under Decree 219/2025/ND-CP. One expert total cost can equal an entire local production team; headcount of experts and the handover roadmap to Vietnamese staff must therefore be their own line in the total-cost equation, not buried in “general management cost”.
FAQs
How much do wages and social insurance costs for a worker differ between Vietnam and Germany?
Do not fix a single figure, because the gap varies by sector and role. Structurally: in Vietnam the employer adds 21.5% mandatory contributions on insured salary (social insurance 17.5%, health 3%, unemployment 1%) plus 2% union funds; in Germany the employer bears about half of total social contributions, roughly a fifth of gross pay. The fully loaded gap therefore remains very large but narrower than the nominal wage gap.
How do labour productivity and training costs affect the total cost calculation?
Lower productivity and retraining needs erode the cheap-wage advantage: the right metric is labour cost per unit of conforming product along a 3–5 year productivity curve, not per-head wages in month one. Ramp-up adds defect rates and the expatriate team that must be maintained.
How do dismissal costs and severance pay differ between the two countries?
Vietnam offers a statutory formula for estimation: severance allowance (Article 46) and job-loss allowance (Article 47) of the Labour Code on creditable service, plus compensation risk for unlawful termination. Germany has no equivalent general formula; cost arises mainly through negotiation and social plans in large reductions — harder to estimate and often higher where unions are strong.
What costs and procedures are needed to bring a German expert to work in Vietnam?
Price the full package per expert: home-standard salary, housing, transport, children schooling, home-leave flights, tax handling (often grossed up), and work permit procedure under Decree 219/2025/ND-CP. One expert total cost can equal a whole local production team, so it must be a separate line in the total-cost model.
This article has been quality-reviewed by the FLAW AI Legal Council