Sectoral job choice and rewards in the Vietnamese labour market

Abstract

Along with many other former socialist countries, Vietnam began a comprehensive economic reform program (the so-called "doi moi'') in the late 1980s. Since the launch of doi moi, the private sector has been legalised and has been playing an increasingly significant role in job-provision and income generation. Yet, a private sector job (compared to a public sector job) is still seen in a less favourable light by job-seekers. This thesis focuses on addressing the question of why a public sector job is still preferred to a private sector job during the transition from a centrally planned economy to a market "oriented" economy in Vietnam. The key data used for the analysis are derived from the Vietnam Living Standards Survey (VLSS) conducted in 1992-93. The thesis consists of four main chapters. The focus of Chapter 2 is to ascertain "who works for whom" and "the driving forces influencing one's probability of holding a particular sector job". A general approach is adopted for the analysis by specifying a "reduced" form for the probability model (the multinomial logit model) presenting the relationship between the probability holding a particular sector job and the characteristics of the individual. Among examined factors, education is found to be the most consistently significant factor influencing an individual's likelihood of holding a certain sector job. A higher level of education increases the probability of employment in the public sector, particularly in government institutions. Age is also a fairly important determinant of sectoral employment. The young tend to have a private sector job, whereas the elderly remain with the public sector. The chapter argues that better economic opportunities and rewards received by public sector employees, in particular highly educated employees, are possible factors amongst others giving potential employees stronger incentives to obtain a job and remain with the public sector. Other factors such as gender, location, region, and the household head's employment type are also found to be important determinants of sectoral employment. According to the 1992-93 VLSS, multiple job-holding is more common among public sector employees than among private sector employees. The incidence of multiple job-holding is 40.7 per cent for public servants, 29 per cent for employees of state owned enterprises (SOEs) and cooperatives, and 16.6 per cent for employees of private firms. Chapter 3 focuses on invesigating the determinants of multiple job-holding by sector and the "causes" of the sectoral gap in the probability of holding more than one job. The traditional model of labour supply is extended to form the economic model of multiple job-holding. The probit model is then applied to examine the factors affecting an individual's decision to hold more than one job. Using the estimates of the probit model, the sectoral gap in the probability of holding more than one job is broken down into two parts; namely, the "explained" part referring to the change in the probability due to the individual's characteristics and the "unexplained" part referring to the change in the probability due to the individual's behaviour. The decomposition results indicate similar behaviour in deciding to hold more than one job between public servants and employees of SOEs and cooperatives since the gap in the incidence of multiple job-holding is dominantly attributed to the "explained" component. Meanwhile, greater shares of the "unexplained" component are found for the sectoral gap decomposition between public and private sector employees. Chapter 4 investigates how wages and earnings (including wages and payments additional to wages) paid by different economic sectors relate to an individual's characteristics, in particular the human capital characteristics. The estimation results indicate that human capital factors represented by years of schooling and job-specific tenure are rewarded by all three sectors. Payments additional to wages provide considerably more compensation for public servants and employees of SOEs and cooperatives, in particular for those with a relatively high level of education and jobspecific tenure. The rates of return to schooling for private sector employees are found to be the highest in the estimation of the wage equation, but the lowest in the estimation of the earnings equation. The low returns to schooling observed in other former centrally planned economies during the transition period are also found for Vietnam. The analysis by location and region indicates that being better endowed with machinery and equipment, a higher level of labour market development, and a greater market orientation are likely to lead to increased returns to schooling. The analysis also shows that females become worse off under the less regulated private sector. Using the household as the unit of behaviour, Chapter 5 compares household well-being between public sector households (with members holding a public sector job) and private sector households (with members having a private sector job) and estimates concealed (or untraceable) income for public sector households. The "informal" analysis (based on welfare measures) and "formal" analysis (based on the estimation results of expenditure functions) both consistently show that members of a public sector household enjoy a higher standard of living than members of a private sector household. Evidence of income under-reporting by public sector households is also found. The estimates of the mean understatement of income indicate that the unreported income by public sector households accounts for no less than half of their reported income, and that household members holding a public sector job are more likely to bring home "unofficial" income. The findings support the hypothesis that public sector employees remain an economically privileged group with considerable scope for "unofficial" income, which is concealed. Show more