Wage determination and distribution in urban China and Vietnam: a comparative analysis

Abstract

Wages are higher in China than in Vietnam. Using data from the Chinese Household Income Project 2002 and the Vietnam Household Living Standards Survey 2002, this paper aims to understand the sources of the wage differences between the two countries. The decomposition results show that for men (women), differences in returns to observed wage determinants contribute more to the inter-country wage gap for most of the wage distribution (the part of the distribution beyond the 20th quantile). Differences in returns to industry are especially important contributor to the wage structure effect for males. For females, differences in the returns to education and experience are the important contributors to the wage structure effect at the middle of the wage distribution. At the low end of the female wage distribution, differences in the distribution of education and experience are the main factors. Despite the lower wages, the relatively lower skilled workforce and the less competitive industry, as a result of the less extensive ownership and trade reforms and slower pace of change in education policy, may erode Vietnam’s attractiveness.