Labor Market in Vietnam:

Reforms and Developments in the context of Globalization

Thang Dang School of Economics

University of Economics Ho Chi Minh City, Vietnam

thang.dang@ueh.edu.vn

November 28th 2011

Problems of the Statement

• Roles of labor market in economic development

• Vietnam’s transition towards to market economy

• Global macroeconomic fluctuations

• Roles of policy-makers on employment and labor market

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Outline

1. Vietnam Economy Overview

2. Labor Market: Reforms and Recent

Developments

3. The 2007–2008 Global Financial Crisis and

Labor Market

4. Problems facing the Vietnamese Labor Market

5. Some Suggestions for Policy-Makers

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1. Vietnam Economy

Overview

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Impressive economic growth

• Since the 1986 Doi moi (Renovation):

– A transition from a centrally planned to a market

economy

– Stable economic growth strongly

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Figure 1.1: Real GDP Growth of Selected East Asian Economies,1986–2010 (% annual)

Source: Data from World Development Indicators (1986–2010)

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-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% A

nnua

l G

DP

Gro

wth

Year

Vietnam China Thailand Malaysia Indonesia

After the Asian financial crisis in 1998, Vietnam’s economic

growth has been second only to that in China in Asia

Figure 1.2: Average economic growth rates, 2000–2008 (%)

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3.9

5.9 5.4

10.2

7.3 7.5

World Asia Pacific ASEAN China India Vietnam

Source: Data from IMF (2009)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% o

f to

tal G

DP

Year

Agriculture Industry Services

Source: Data from GSO National Accounts (1986–2009)

Figure 1.3: Contribution to total GDP by aggregated economic sectors, 1986–2009

(constant prices 1994)

Changing the structure of economy towards industry

and services

Sources for economic growth

• The point is that while FDI plays a critical role in opening

up new export markets and encouraging technological

change and transfer, its role in providing employment will

continue to remain secondary to domestic firms.

(Permani, 2008 and 2009)

• Exported–Oriented Industrialization (EOI) policies

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Figure 1.4: Foreign Direct Investment (FDI) Inflows into Vietnam, 1991–2010 (USD millions)

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0

2000

4000

6000

8000

10000

12000

14000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

USD

m

il.

Year

Source: Data from GSO (1991–2011)

Figure 1.5: Vietnam’s Exports of Goods and Services, 1986–2010 (% of GDP)

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0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% o

f G

DP

Year

Source: Data from World Development Indicators (1996–2010)

2. Labor Market: Reforms

and Recent Developments

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Population and Labor Force

• Big size of population and labor force:

– Human Resource for development: Increasing productivity,

competitiveness, and economic development

– Rising the rate of savings in the economy

– Key Policies: Creating employment to utilize this resource; social

security

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Figure 2.1: Population of Vietnam, 2000–2008 (‘000 people)

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77635

78686

79727

80902

82032

83106

84137

85172

86211

72000

74000

76000

78000

80000

82000

84000

86000

88000

2000 2001 2002 2003 2004 2005 2006 2007 2008

'000 p

eopl

e

Years

Source: Data from GSO (2000–2008)

Figure 2.2: Vietnam’s Labor Participation Rate, 1986–2010 (% of Total Population Ages 15+)

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68

69

70

71

72

73

74

75

76

77

78

79

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% o

f to

tal po

pula

tion

15+

Year

Source: Data from World Development Indicators (1986–2009)

Although there are some decreases in Labor

Participation relatively due to …

Figure 2.3: Labor Force of Vietnam, 1996–2009 (people)

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0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Peo

ple

Years

Source: Data from World Development Indicators (1986–2009)

… increases in labor force absolutely

Figure 2.4: Labor force 15 years and older by age groups, 2000–2010 (% of Labor Force)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% o

f Lab

or F

orce

Year

15 - 24 25 - 49 50+

Source: Data from GSO (2000 - 2010)

Young labor force has brought many valuabe things….,

however there have been some drawbacks ….

Population and Labor Force

• How is about the quality of Vietnamese labor force?

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Although there are improvements on average

schooling years…

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7.4 7.4 7.5

8.1

8.3

1993 1998 2002 2004 2006

Ave

rage

Yea

r of

Sch

oolin

g

Year

Source: Data from VLSS (1993, and 1998); VHLSS (2002, 2004, and 2006)

Figure 2.5: Average years of schooling of working age population

Figure 2.6: Education structure of working age population, 1993–2006 (%)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 1998 2002 2004 2006

% o

f w

orki

ng a

ge p

opul

atio

n

Years

No degree & primary school Lower secondary school Upper secondary school Junior College and above

Source: Data from VLSS (1993, and 1998); VHLSS (2002, 2004, and 2006)

…,the quality of labor resources is still major problem

Employment Trend

• Labor mobility:

– Increasing rural–urban migration rate (although 72%

of population from rural regions) (MOLISA, 2010)

– Mobility of workers from the agricultural to industrial-

service sectors and vice versa is possible with

transactions costs (Chan et al. 2005)

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Employment Trend

• Employment Growth:

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Year 2000 2001 2002 2003 2004 2005 2006 2007

Labor Force Participation Rate 72.3 73.0 72.5 72.0 71.4 71.1 70.3 69.7

Employment Rate of Population 15+ 70.7 71.0 70.9 70.4 69.9 69.6 68.7 68.1

Table 2.1: Labor Force Participation Proportion and Employment Rate of Population

aged 15 and over, 2000–2007 (%)

Source: MOLISA, and Labor Survey (2000–2007)

Employment Trend

• Employment Growth: Non-stated sector has increasing

contribution to employment creation in the economy

(MOLISA, years from 2000 to 2007)

– Employment rate: 90%

– Employment creator rate: 91%

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Employment Growth has been low, and …

Industry Employment Elasticities

Agriculture -0.11

Industry 0.85

Manufactoring 0.66

Construction 0.41

Services 0.68

Non–Agriculture 0.74

All sectors 0.31

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Source: Adapted from Manning (2010)

Table 2.2: Employment Elasticities with Respect to Output

by Industry (2000–2007)

… has been not equivalent to Economic Growth

• Have public policies for creating jobs in Vietnam been

sufficient and effective?

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1.27

0.58

0.58

0.47

0.43

0.37

0.32

0.28

0.21

0 0.2 0.4 0.6 0.8 1 1.2 1.4

Brunei Darussalam

Singapore

Philippines

Malaysia

Indonesia

Lao PDR

Cambodia

Vietnam

Thailand

Source: Adapted from MOLISA (2010)

Figure 2.7: Employment Elasticities to GDP of some selected countries in

Southeast Asia, 2004–2008

Employment Trend

• Job creation:

– Jobs in the foreign sector: rapid employment expansion in

manufacturing (accounting for nearly 40 per cent of all new

jobs 2000–2007) (Manning 2010)

– Jobs were created for new job seekers as well as rural

workers who had been previously engaged in agriculture

– Even though employment growth was much slower than in

the foreign sector, the majority of new jobs (around 75 per

cent) were created in the domestic private sector in 2000–

2007

– The variety of jobs created outside the agricultural sector

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Changing the structure of employment by economic

sectors in the economy …

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007

% o

f T

otal

Em

ploy

men

t

Years

Agriculture Industry Services

Figure 2.8: Employment Rates by economic sectors, 2000–2007 (%)

Source: MOLISA (years from 2000 to 2007)

Unemployment Trend

• Low umployment rates because workers willing to accept

low-paid jobs more than underemployment status

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0

0.5

1

1.5

2

2.5

3

2000 2001 2002 2003 2004 2005 2006 2007

Une

mpl

oym

ent

Rat

e

Year

Source: Data from MOLISA and Labor Survey (years from 2000 to 2007)

Figure 2.9: Unemployment Rate, 2000–2007 (%)

Figure 2.10: Unempoyment Rates of Labor Force in Urban Regions,

1996–2010 (%)

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0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% u

nepl

oym

ent

Years

Source: Data from GSO (years from 1996 to 2010)

Labor Productivity

• What is about productivity of Vietnamese laborers?

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Figure 2.11: Labor Productivity of Vietnam, 2005–2010 (VND mil./worker)

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19.6

25.3

32.0

34.7

40.4

2005 2007 2008 2009 2010

VN

D m

il./w

orke

r

Years

Source: GSO (years of 2005, 2007, 2008, 2009, and 2010)

Increases in Labor Productivity,…

Figure 2.12: Labor Productivity of Some Countries in 2008 (USD, 1990)

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45,958

25,924

15,520

10,430

10,406

9,276

8,214

7,453

5,702

4,079

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

Singapore

Malaysia

Thailand

China

Indonesia

ASEAN

Philippines

India

Vietnam

Cambodia

USD

Cou

ntrie

s

Source: Adapted from MOLISA (2010)

…. low labor productivity in comparing with other

countries in Asia

Figure 2.13: Comparative labor force utilization in the world, 2003–2007 (%)

Source: Economic Intelligence Unit (2008)

Turkey

Sri Lanka

Colombia

Nicaragua

Philippines Malaysia

Pakistan

Bulgaria

Morocco

Mexico Argentina

Hungary Italy Austria Romania Bangladesh Poland

France India

Lithuania Indonesia

Slovakia Brazil

USA UK Finland

Germany Czech republic

South Korea

Japan Portugal

Canada Thailand

China

Sweden Hong Kong Norway NewZealand

Chile

Slovenia

Taiwan

Spain

Latvia

Russia Australia

Iceland

VietNam

Ireland

Singapor

30%

35%

40%

45%

50%

55%

60%

-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

Lab

or f

orce

par

ticip

atio

n ra

te 2

007

Change in labor force participation rate, 2003 - 2007

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Figure 2.14: Comparative labor productivity in the world, 2003–2007 (%)

Coted Ivoire Senegal

Dominican Republic Yemen

Ecuador Brazil Iran

Syria

Peru

Pakistan

Kenya Ghana Bangladesh Nigeria

Philippines VietNam

Ethiopia Cambodia

India

Indonesia South Africa Egypt Thailand Bulgaria

Tunisia

Costa Riac Mexico

Chile Argentina Croatia Poland

Portugal

Hungary

Ukraine

Sri Lanka

Russia Colombia

Czech republic Kazakhstan

Malaysia Turkey

Saudi Arabia

Lithuania

Slovakia Latvia

Slovenia NewZealand

Spain Greece South Korea

Switzerland

Germany

Italy Austria

Canada Australia

Israel Iceland

Japan Denmark Taiwan Singapore

Sweden UK Finland Norway

France Ireland

USA

Hong Kong

Estonia

Venezuela

Belarus

China

2000

12000

22000

32000

42000

52000

62000

72000

82000

-1% 1% 3% 5% 7% 9%

GD

P p

er e

mpl

oyee

2007 (

ajus

ted

PP

P)

Compound annual growth rate of real GDP per employee, 2003 - 2007

Source: Asia Community Research Center (2008)

28/11/2011 34 Thang Dang

Labor Productivity

• The agricultural sector (Mainning 2010)

– Quite large by international standards: In 2007, it accounted for

just under half of all employment (for example, compared with 40

per cent of jobs in Indonesia and closer to 30 per cent in the

Philippines among comparator countries in East Asia).

– Recorded labor productivity was very low: one-quarter to one-fifth

of productivity levels in manufacturing and most service sectors in

2007

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Wage and Income

• Wage and laborers’ income has been increased during

the period of strong economic growth (MOLISA, 2010)

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3. The 2007-2008 Global Financial Crisis

and Labor Market

• Economic stability began to falter and Vietnam faced a

difficult eighteen months before it began to be caught up

in the global slowdown in the second half of 2008

(Thanh and Duong, 2009)

• As first price instability and then the GFC impacted on

output and exports.

– The Vietnam economy has performed well: growth performance through

2008 and 2009 is much closer to that of China (and Indonesia) than

countries more seriously affected by the slowdown in the global

economy;

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Figure 3.1: Annual GDP Growth in Selected East Asian Countries,

2007–2010 (% annual)

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-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2007 2008 2009 2010

% A

nnua

l Eco

nom

ic

Gro

wth

Years

Vietnam China Thailand Malaysia Indonesia

Source: Data from World Development Indicators (2011)

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Figure 3.2: Vietnam’s Exports of Goods and Services,

2007–2010 (% of GDP)

62.0

64.0

66.0

68.0

70.0

72.0

74.0

76.0

78.0

80.0

2007 2008 2009 2010

% o

f G

DP

Years

Source: Data from World Development Indicators (yearly)

3. The 2007–2008 Global Financial Crisis

and Labor Market

• Labor Market Impacts

– Effects on employment, hours of work and wages in

export-oriented industries: being especially felt by

more vulnerable contract workers and in some small

and medium establishments which produce products

outsourced from larger exporting firms

– The absence of direct government support, are likely

to flow through to the domestic economy, impacting

on jobs and, more important, incomes of the large

majority of self-employed workers

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3. The 2007–2008 Global Financial Crisis

and Labor Market

• Response to the Crisis

– Export-oriented firms and small and micro-enterprises

linked to global production networks were hit

particularly hard

– While job losses for regular workers tended to be

small (especially since companies were concerned

about capacity to respond to demand increases during

the recovery), firms adjusted by reducing hours of

work, overtime and the number of shifts

– Many workers who did lose their jobs were able to

shift to agriculture, trade and construction (the latter

boosted by stimulus packages) and at lower rates of

pay in the informal sector

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3. The 2007–2008 Global Financial Crisis

and Labor Market

• Consequences:

– Unemployment increases were not large but poverty

decline for individuals is estimated to have halted in

East Asia (World Bank 2009b, p. 24) due to flexible

labour markets have ensured low unemployment

– Being been milder compared with several

neighbouring countries (Vietnam’s degree of

international exposure)

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Figure 3.3: Unemployment rates of

labor force age by region (%)

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2008 2009 2010

%

Years

Total Urban Rural

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2008 2009 2010

%

Years

Total Urban Rural

Figure 3.4: Underemployment rates of

labor force age by region (%)

Source: GSO, Employment and national accounts data (yearly)

3. The 2007–2008 Global Financial Crisis

and Labor Market

• Labour Institutions and the Recovery

– The right signals to workers in regard to higher

productivity opportunities

– Workers being able and willing to move to growing

sectors of the economy

– Need more labor market flexibility from labor

regulations

• Particularly in:

– Minimum Wages

– Industrial Relations

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4. Problems facing Vietnamese Labor Market

• Challenges facing Vietnam’s labor market (Manning,

2010)

– Slower labor market adjustment because of the institutional

environment

– Shortages of skilled labor

– Labor market rigidities and

– An under-developed industrial relations system

• Some major impediments still remain to a more flexible

labor market, which inhibit employment adjustments,

both in boom and bust. Obstacles to employment

creation have included the system of registration for

rural urban migrants, which has probably slowed

permanent migration for jobs into cities and the new

industrial zones (Loi, 2005)

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5. Some suggestions for policy-makers

• Need more reforms in the labor market institutional

environment

• Educational Reforms: Enhancing the quality of human

resources (Major Problem in Vietnam)

• Flexible industrial relations system: Labor mobility

• Social Security Policies for workers

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