Economic reforms, manufacturing employment and wage in Vietnam

Abstract

The purpose of this thesis is to examine patterns and determinants of manufacturing employment and wages in Vietnam during the process of economic transition from a centrally planned to a market- oriented economy during the period 1990-2011. The thesis begins with an interpretative survey of the theoretical and empirical literature on manufacturing employment and wages in a labour-abundant economy, in order to provide the analytical context for the Vietnam case study. The second chapter surveys the market-oriented economic reforms in Vietnam over the last quarter century, with special emphasis on policies directly relevant for examining labour market outcomes. The next four chapters form the analytical core of the thesis. Chapter 4 examines structural changes in employment patterns in the economy with emphasis on the shift in the patterns of labour deployment from agriculture to manufacturing. Chapter 5 probes the impact of manufacturing export expansion on sectoral employment patterns. Chapter 6 deals with the determinants of inter-industry patterns of manufacturing employment, paying particular attention to the role of export orientation and firm ownership. Chapter 7 focuses on the determinants of manufacturing wages and wage premium. The empirical analysis in these four chapters makes use of a new firm-level panel dataset compiled from unpublished returns to the Annual Enterprise Survey undertaken by the Vietnamese General Statistical Office. The final chapter summarizes the key findings and provides policy implications. The findings suggest that the reforms have resulted in a significant shift in the pattern of labour absorption in the economy from the agriculture to manufacturing over the past three decades. Employment expansion in the manufacturing sector has been underpinned by a significant change in the employment pattern by ownership. Private sector firms, especially foreign-invested enterprises (FIEs) have played a pivotal role in labour market transition. In particular, FIEs in export-oriented industries have accounted for the bulk of new jobs in the manufacturing sector. The expansion of manufacturing exports contributed to a notable increase in overall employment growth. Additionally, there has been a considerable spillover effect of export expansion on job creation in other sectors. There is also evidence that FIEs generally pay higher wages compared to both state-owned enterprises and domestic private firms, and the presence of export-oriented FIEs has contributed to widening the wage premium between skilled and unskilled workers. In general, the Vietnamese experience of employment generation through export-oriented strategies is comparable to that of the other East Asian economies. However, growth of manufacturing employment in Vietnam has begun to falter from about 2006, owing to macroeconomic policy slippage. The findings in this thesis make a strong case for sound macroeconomic management in order to sustain the favourable labour market outcome of liberalization reforms.